What is Forex Market?
In its original meaning, the term Forex (FX) is an exchange of one foreign currency for another at a certain price. However, to date in many countries this word is directly associated with the international OTC market. Let’s analyze initial meaning of the term Forex.
Suppose you are planning a trip to the UK, but as a foreign money you have only US dollars. You go with them to an exchange office and study quotes: the ratio of GBP to USD is 1.30 (in other words, to buy 1 GBP you need to have $ 1.3). You decide to buy 1,000 pounds by spending $ 1,300
After some time, the trip is canceled, and you come to an exchange office to return the already unnecessary British money. After examining quotes, you find that the GBP / USD rate is 1.45 (against 1.3 previously). And now, giving away your 1,000 pounds, you get $ 1,450, which is 150 more than you spent the last time.
After completing this operation, you can safely be considered as a participant of the Forex market, because this is what it’s all about a client task – to earn on difference in rates by buying for less and selling higher. In fact, Forex is a general definition of all foreign currency exchange transactions that are speculative in nature.
24-hour work schedule
Forex is an international market operating 24 hours a day, 5 days a week (from Monday to Friday). Work at there begins on Monday morning in Wellington (New Zealand) and continues in Australia, Japan, China and Singapore, before working hours in Europe. As Asian banks close, financial institutions open in Russia, Germany, England, France and other European countries, and in evening, America joins the bidding. After closure of American exchanges and banks, everything is repeating anew.
One of factors of Forex 24-hour work schedule, in addition to geographical reasons, is lack of physical location of the market or central exchange. Deals are conducted directly between banks, enterprises, private clients and other players, that ensures constant availability of liquidity.
Liquidity and Margin Leverage
Forex is the the most voluminous market in the world: according to some estimates, every day deals in total worth more than $ 5 trillion are being opened and closed there.
This means that Forex clients constantly have the opportunity to open and close deals of any volume at the best prices, and therefore, their opportunities to earn money are growing. In addition, the practice of margin execution of investment transactions (using margin leverage) is the most widespread on Forex. Therefore, even private clients with small capital can make a significant profit on it.
What explains Forex volatility?
Currency quotes are one of the most important indicators that determine state of a country’s economy, which is why players of the OTC Forex market in Belarus are constantly analyzing many factors, trying to find the most adequate price for this or that currency.
This makes work on the OTC market so exciting and popular – high liquidity means that prices change at lightning speed under influence of news, political factors, decisions of central banks and other events.
The main factors influencing quotes are:
- Political and economic stability;
- Rates of growth and inflation;
- Monetary policy of central banks;
- Level of state debt;
- Force majeure circumstances.