The foreign exchange market is a global trading system created to facilitate trade and investment because dealing with foreign markets also means dealing with foreign currencies. With more and more businesses and transactions going global, forex is now commonplace in government and business.
Foreign exchange trading is currency exchange, where one currency is exchanged for the corresponding amount from another currency. Banks and other financial institutions are the ones facilitating these transactions. Using currency trading charts, the currency trading software (for online trading) and a forex platform allows global transactions to run smoothly and securely.
There are many players involved in forex trading such as money transfer companies, banks, commercial companies, and central banks.
1. Banks, being the primary financial centers of local commercial trade, hold what may be millions or billions of dollars for trade every day. Banks also offer services wherein they made trade on behalf of their customers, whether individual or corporate. Accounts of depositors are managed for trade by the respective banks.
2. Money transfer companies get the currency up for exchange through remittances of local employment. Economic migrants have steadily increased and so has the volume of money being exchanged from one currency to another, that is, from the originating country to the home country of the migrant worker.
3. Commercial companies also give a steady flow despite transferring small amounts on a daily basis. These would be company payments for goods and services which originated in another country. Whether these are small or large transactions, they can quickly accumulate and may very well dictate whether currency and forex trading will be high or low.
4. Central banks can also intervene on forex market movements, but this can be a sensitive issue. Central banks can control money supply and/or interest rates; however, trading for profit is a controversial topic and is best handled delicately. They have considerably large amounts of funds available for trading, making them key players in forex, but to use them to stabilize local markets and the associated currencies is not a very strategic move, especially as global markets are notoriously difficult to predict.
Movements in forex trading are determined by factors such as economic considerations and political stability or instability.
1. Economic factors: budget deficits in a given government will reflect negatively in the forex market, decreasing the value of the currency over time.
2. Inflation can also affect a country’s currency when it is deemed that there is a high inflation rate or if the trend toward high inflation is rising.
3. The healthier a country’s economy is when it comes to its employment rate, GDP, and retail sales (among other factors), the more likely it is that that country’s currency value and forex transactions will also increase.
4. Destabilization, or any negative political movement, in a country affects its economy, and is therefore affecting its investors’ interest level and the country’s currency exchange rates.
Forex trading is a complex and sensitive system wherein all global financial aspects come together. It plays a pivotal role in global economic management, and governments and companies are keen to keep this system fair, secure, and able to evolve with the times.
Source: http://www.howtodothings.com/finance-real-estate/forex-trading-whats-involved
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