Forex Exchange and Spot Market : Know how all this Works
Forex is a global over-the-counter decentralized financial market for trading of currencies. Foreign exchange is primarily used to assist international trade and investment, as it allows international business to convert one currency to another currency. Such as, it allows an EU business to import US goods and pay in US dollars, even though its own income is in Euros. Forex market also supports speculation, and facilitates carry trade, which means traders borrow low-yielding currencies and invest in high-yielding currencies to earn profits.
Forex trading is being regarded as ‘today’s exciting investment opportunity for savvy investors’. This is because of its rapid growth. It all started in 1978, when countries allowed their currencies to float according to supply and demand, seven years after Gold was abandoned as currency scaling standard. Even, up till 1995 Forex Trading was limited to international banks and multinational conglomerates only. But today, this profitable market is open for everyone, largely by means of internet based communications. The Forex Trading Market’s growth has been unprecedented, explosive, and consistently remains to be unequaled by any other trading market. Worldwide traders conduct business remotely through high-speed Internet connections with Interbank Currency Exchange via Forex Brokerage Firms, also called Forex Clearinghouses. It even does not require any centralized location or trading floor.
World’s Largest Market. Forex is world’s largest marketplace with 1.9 tr illion dollars trading / day (BIS study Triennial Central Bank Survey 2004), approximately 35 times higher than NYSE (New York Stock Exchang e) as of 2008 stock volumes, stands around 55 billion US dollar.
World’s Most Powerful Market. The Forex Market is also world’s most powerful and persistent trading market regardless of negative economic indicators. This is because currencies trend better than all other markets due to their macro-economic nature. Moreover, Forex market predictability is well illustrated in the way interest rates change gradually in small increments only.
Spot Forex. Traders use to carry out currency trading through spot Forex due to obvious reasons. The spot / cash market is a public financial market, where financial instruments, also called commodities, are traded for immediate delivery. It is different from a futures market, where delivery is due at a later date. The Spot Forex market has a 2 day delivery date, thus providing high liquidity, originally due to the time it would take to make a cash transaction from one bank to other. Most speculative retail Fx trading is a spot transaction with an online trading platform. Other popular feature for well-advised Spot Forex self-traders is the potential of earning strong profits from continual market fluctuations by buying a specific currency when it is getting weaker and selling it back when it gets stronger. This potential for profit or loss is amplified with implementation of leverage. Leverage used to describe what can be achieved when a smaller amount of money controls a much bigger amount of money. Online Forex day trading largely focuses its investment activity on Spot Forex because of ‘risk manageability’ of in-and-out trading plus the potential to generate highly liquid and excellent profits.
Few financial industries have potential to generate as much excitement and profit as Forex market. Traders worldwide enter in trading activities for weeks, days or split seconds, and generating explosive moves or steady flows, resulting money changes hands quickly on daily average of one trillion US dollars. George Soros from Quantum Fund earned a profit in excess of 1 billion dollars just in a couple of days work in September, 1992. Even by Wall Street standards, these numbers are ‘heart-stoppers’. But beware; this may go otherwise as well, if you are not well versed with Forex market trading rules.
Trading on the Currency Exchange Market is surging into public awareness, as more and more of internet traders are attracted by the market’s inherent risk manageability and profitability. In addition to this, absence of temporal boundaries or geographic and vibrantly active Forex market is virtually open for every one to test their fortunes.