Foreign Exchange and its applications

Foreign ExchangeForeign Exchange is the direct access of business by trading different types of currencies. In the past, it is applicable only for large institutions and banks. But now with the technological advancements, small traders also can earn profits with the availability of various online trading platforms. Currencies in the World are exchanging in floated rates and the trading is done always with pairs. About three fourth of the trading involves currencies from major countries. Four major country’s currencies are doing major investment purposes. They are US Dollar against Swiss Franc, British Pound against US Dollar, US Dollar against Japanese Yen, Euro against US Dollar. Foreign Exchange involves buying and selling currencies. The daily exchange transactions are worth approximately $ 1.5 trillion. Foreign Exchange is in the top, when compared to other markets like Stock Exchange and US Treasury bond market.

Introduction of Foreign Exchange

Forex is started in ancient times in the biblical times, but it is under the lime light during 1970’s with the floating rates of currencies. After that, the technological advances in 80 have set the daily exchange of $70 Billion to $1.5 trillion now days. The Forex market comprises of almost 5,000 trading institutions like large banks, commercial companies and Forex brokers for the exchange of all types of currencies. There is no headquarters for Forex centers. The major trading centers are located in New York, London, Tokyo, London, Singapore, Hong Kong, Frankfurt and Paris accordingly. Mainly the trading is done over the telephone or internet. Transaction cost is also low, when compared to the other markets.

How the Foreign Exchange works?

Forex, sometime works based on the luck and smartness of the traders. The currency will always trade in pairs. Transaction process involves selling of one currency or buying of another currency. For example if a trader believes euro will be profitable other than dollar, then he will buys euro and sells dollar. The profit will be potential, because of the movement of currencies. If any small changes in trading, it can result in substantial profits, because of the large amount of investments. The loss ratio is very low, because they use some software tools for reducing loss and maintain the market in constant conditions. In these days, Foreign Exchange traders are breaking the large sized bank units to small units for the trading opportunity for small traders, so that small traders can buy or sell smaller units. Foreign Exchange policies and the traders, brokers will provide the same profit ratio for both the large unit traders and small unit traders.

Advantages of Foreign Exchange

There are so many benefits on trading with Foreign Exchange

  • Liquidity: The size of the market is relatively big, so large international banks are offering bids and offers and there will be high number of transactions, that means there will be sellers or buyers for any type of currency
  • Accessibility: Forex markets will be open for 24/5 environment, except the weekends. So, traders can work any time from office or home.
  • Open access Market: Sometimes the currency value of the country’s may change based on their national economies. This change will open to all the people at same time and there will not be any insider trading in Foreign Exchange.
  • Commission amount is less: Brokers take commission based on their spread of business, so there will be minimal amounts of commissions.

So, finally if anybody wants to involve in these types of markets, Forex market is the one step solution for them. Because, in this market there are so many possibilities of gaining profit rather than loss. There will not be any fake transactions and the trading is genuine with all the documents. Presently Foreign Exchange market is in top position in comparison with stock markets.

 

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