FOREX MARKET AND FOREIGN EXCHANGE RATES

Unlike the stock exchange, the Forex Market (foreign exchange market) is a relatively new player to the investment world. Today's current Forex market model started in the early 1970's, and today it represents the biggest financial market around, even surpassing the stock market. With trading surpassing $2 trillion dollars per day, the Forex market attracts more and more investors all the time. Before an investor starts trading on the Forex market, he should grasp the fundamentals of how exchange rates work.

Exchange rates

Basically, the exchange rate represents the rate of exchange between two currencies. Most currencies are traded, or paired up against the dollar. The five most common currencies traded on the market are the dollar (USD), euro (EUR), the yen (JPY), the British pound (GBP), and the Swiss franc (CHF). Some other currencies that are traded are the Australian dollar, the Canadian dollar, and the Hong Kong dollar.

In the exchange rate or ratio, the numerator represents the quote currency and the denominator the base currency, which always equals one.

Marketplace Participant

Unlike the stock market, forex market divided into levels of access. In the interbank market, which consists of the largest commercial banks and securities markets. In the interbank market, spreads, the difference between the bid and crisp and well-known and generally available to players outside the circle. The difference between the bid and extends (0.1 peep some money is 1-2 euro). This is because the scale. If a trader can guarantee large numbers of transactions in large quantities, they may require less than the difference between bid and offer prices, better known as distributed. The level of market access to foreign currency according to the size of the "line" (the amount they are trading). Top-level inter-bank market accounts for 53% of all transactions. And smaller banks are usually followed by large multinational corporations (which are the risks and protect employee wages in other countries), large hedge funds, and even some retail FX-metal market makers. According to Galati and Melvin "Pension funds, insurance companies, investment funds and other institutional investors are increasingly important role in the financial markets and FX markets, especially in the early 2000s. (2004) In addition, he says: "Hedge funds have grown significantly during 2001 - 2004 and the number and size of the" Central banks also participate in the currency market to adjust their economic needs.