|08-14-2014, 12:27 AM||#1|
Distinctive Features of Forex Market
Forex is a vast trading market that is comprised of numerous distinctive features. Out of these, there are three main features that help new traders to learn the exact meaning of foreign exchange market in terms of trading. Before making their first move in forex, every new trader must know these features and their value in different trading strategies. Unlike other trading systems, forex encompasses the entire globe and it can be very difficult to interpret and trade successfully in foreign exchange market. Before opening a new forex account, you should be aware of distinctive features of forex market that are described below:-
Functional feature- the entire foreign exchange functions to establish transfer purchasing power between various countries. Whilst making trades, different partners are converting currency profits into their domestic currency funds. If a country’s purchasing power is strong, another country might be trading with a low purchasing power. Another important function of the forex market is to obtain and provide credit for international trades while avoiding an exchange rate disaster. In case of international trading, forex market is quite efficient as it helps in the movement of goods between nations and offers funds for financing.
Geographical feature- the spread of forex market has no limits at all. It spans from North America to Asia, China and back to American subcontinent. There is no doubt in the fact that no nation remains untouched from the impact of foreign exchange market. The easy to access 24 hour a day trading of forex makes it more attractive in the eyes of investors. There is something for every individual in forex market. No matter what time you pick to start your trade, there will always be a responsive trader in other part of the world. The geographical feature of foreign exchange market helps new traders in understanding the volume and extent of forex. The major exchanges for forex trading are located at Singapore, Hong Kong, Tokyo, London, New York, Bahrain, Sydney and San Francisco.
Participants- forex market thrives between interbank or wholesale market and clients that are also collectively known as retail market. There are various kinds of participants involved in the trading between these two parties.
The foremost participants in this case are bank and non-bank foreign exchange dealers who excel in buying at bid prices and selling at asking prices. By trading currencies, banks are able to make a good amount of profit that can sum up to 20% of the total share.
The second types of participants are investment firms. This category consists of importers, exporters, tourists and other type of investors. They take the help of market in order to make investments. They are often observed making use of forex as a hedge in order to reduce the amount of risk.
The third group that looks for profit in foreign exchange market are speculators and entrepreneurs. These individuals are out there in trading market trying their luck to make money for themselves. They act in their own self-interest during every trading step. They pursue lucrative rate changes to help them profit with least possible risk indulged. In some cases, large banks are also part of this group.
Brokers working in foreign exchange market are the last of participants involved in trading systems of forex. These are the participants who facilitate trading but do not act as partners in the process of transaction. In normal cases, they charge a fee for their advising services. This fee is often decided on a commission scale. Many a times, brokers act as bridge between large scale traders and grand trading positions.
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