The foreign exchange market is a worldwide financial term which is evolved anywhere the trade of currencies is being done. There are a lot of other terms correlated with this it like oversees, distant conversing souk etc. Working style of foreign exchange market throughout the world is an interesting subject of economics as it is one of the fastest evolving businesses.
Middle Eastern money changers were the ones who, for the very first time exchanged currency from one to another. During middle age paper bills was introduced which replaced the coins. These paper bills flourished in the regional economics during the subsequent economic eras. The foreign exchange market started in early 1973.
The reason for paper back currency popularity is that it makes the exchange easier in handling. This business works regularly due to the time zone differences between various regions of the world. It remains working throughout the year virtually. It is a huge business and provides facilities to new investors for investing in it and groom up their businesses more rapidly.
Value of a currency of any county is influenced mainly by the factors of supply and demand. Supply means accessibility of specific commodity (product, currency etc) at a given time. When there is a decrease in supply it means there is more value of to that commodity or currency but when there is an excessive supply, it means a decrease in the value of that specific commodity or currency.
On the other side, demand of a commodity and currency also affect its value. When there is huge demand, then it is possible that prices of that commodity and currency will increase. Another important aspect that determines the value of money is the economic condition of that country. Ifeconomy is doing well, then the value of its currency will be high.
The main Traders in this business are governments, banks, financial institutions (provide financial services) currency speculators (A financial act that does not guarantee return on basic investment) central banks, retail and institutional investors and hedge funds. There is no central exchange or clearing house in foreign exchange as dealers or brokers negotiate directly with each other.
There are huge markets of currency business because liquidity of cash remains high in this market and all the money can easily be converted into cash. Foreign exchange markets make it easier for traders to do business all over the world. It provides benefits to travelers who move around the globe as they can get the currency of that particular country with ease.
According to Investopedia, Daily Turnover of financial market is approximately $3.98 trillion and it is rapidly growing as high frequency traders are increasing their activities in foreign exchange market. Another reason of its growth is the entrance of electronic trading (buying and selling of bonds and securities) through internet.
If rate makes some little favorable change in rate at will bring huge profit but if change moves against them then there will be loss. In spite of all this, availability of leverage makes the foreign exchange market is very attractive place for speculators. Overall this is a market which favors investors with a very keen sense of the ongoing activities and only such people can make the best of this business.