When businesses buy and sell products from countries other than their own, they have an issue of currency to deal with. For example, the US currency is the dollar, while Japan uses the yen. However, this doesn’t have to be a problem, as the foreign exchange, commonly known as Forex, was designed to provide a solution in these situations. They also allow you to invest in the country itself, buying and selling their currency as values fluctuate, similar to stocks, but at a much bigger level. It also helps with speculation of currencies for both changes in value and changes in interest rates. Most transactions are simple, and begin when one party buys a particular quantity of one currency by paying a quantity of another currency. Following the previous example, an American company would buy a large quantity of yen from the exchange by paying US dollars. They could also buy these sums of yen and sell them back at a later date when the value of the yen inflates.
This market is unique from other markets in many ways:
- due to its large trading volume alone, it represents the largest asset class in the world, and it has high liquidity;
- geographically, it represents an enormous majority of the world;
- it runs on a 24 hours schedule, minus weekends; and
- it works around all the various factors that tend to affect the exchange rates, and it does this at a fast pace, creating high liquidity.
The forex market allows investors exclusive and lucrative opportunities for investing, such as commission-free trading and many communication methods allowing for easy accessibility. Compared to other investment options, more consumers have chosen this method of investing due to these great features.
Foreign exchange does business for countries and large corporations around the world, but also encompasses small currency exchanges, say if you travel to Europe and need Euros while on vacation. You would have to go to a kiosk and exchange your currency. The expansion of globalization has caused the numbers of these transactions to multiply. This global market is without a doubt the largest financial market in the world, and sees volumes up to billions of dollars circulating through it on a daily basis.
One huge factor that causes this market to stand apart from the stock market is its decentralization, as well as its deregulation, which allows individual buyers to choose their lenders themselves, finding the dealer with the best price that they want to do business with and cutting out the middle man. Usually, larger dealers have better access to lower pricing at the biggest banks worldwide, and will share those deals with their consumers, allowing for a cheaper exchange rate.
If you are one who is thinking of investing for your future, and know little about the topic, but do not want to pay a middle man to do it for you, this is an easy choice. With its large market, easy accessibility, and fast return rates, this is might be the option for you.
Article by Debbie who frequently writes about personal finance, foreign markets and currency exchange.
- Forex Charts (forextradingsystemcentral.com)
- Landmarks in the Forex History (fastswings.blogspot.com)