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Forex (Foreign Exchange)

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The term FOREX comes from the contraction of "Foreign Exchange". Forex, as the name suggests, is a market intended only for the various currency pairs. This market allows investors to buy or to sell the currency which they want by means of an immense interbanking market, extended at global level. This market started with the change which occurred within many countries at the beginning of the 70’s of transformation of the exchange rate policy existing in that moment in the floating exchange rate, which is kept to this day on most current market economies.

 

The Forex market

The Forex market has a series of peculiarities with respect to the shares markets. The first is the fact that it is open 24 h a day, from Monday morning until Friday night. Indeed, since many operators in the entire world are involved in this market, it is necessary that it be open non stop to facilitate their access to the Forex market notwithstanding the location and the time zone. This market is closed only in the weekends. Another characteristic rendering it unique is the very high transacting volume. Transactions on this market reach the level of trillions of dollars every day worldwide. Another characteristic rendering it unique is the high geographic dispersion. The quotations of the exchange rates are subjected to various factors such as the economic indicators (the gross internal product, the unemployment, the inflation, the external debt, etc.). On this market one can also transact in margin, which allows the "boomerang effect" if one hits the trend of the rate.

The Forex market by its characteristics is very close to the model of the market with perfect competition.

 

Participants in the Futures market

Taking into account that in order to transact on the Forex market one only needs a laptop, an internet connection in order to be connected anytime to the trading system, among the participants in the Forex market are the central banks and the big commercial banks which exchanged among them foreign currency for the bank needs, and also the common citizens.

The first players on the Forex market have been the national banks and by means of them, the governments of the world states. The role of the national banks is not to speculate on the Futures market. Their role is, or should be, a regulating one. They try to control the liquidities flux in the economy, the inflation and/or the interest rate. They often have very large reserves of foreign currency with which they can intervene in the market in order to bring a certain exchange rate of a currency to the level they established by the monetary policy strategy. Fortunately, the volumes being transacted on this market are very large, so large that not even a national bank can influence alone the exchange rate of a currency.

Banks are also important players on the Forex market. Among the most important banks evolving on this market are Bank of America, Credit Suisse-First Boston and Goldman Sachs.

Hedge are those funds which usually pursue a strictly speculative profit. Some of them have at their disposal funds of billions of dollars entering on the Forex market by mere speculation, trying to take the national banks by surprise and to take the exchange rate where they want it to be.

Trade companies can also participate in the Forex market. They usually do this in order to buy the currency to pay the goods and/or services they need.

Investment management companies - they need foreign currency in order to purchase shares or assets in various markets and in different locations in the world.

Transacting begins in Australia, continues in Asia and Europe, and the "loop" is closed with the United States market.

The interest raised by Forex among individual investors is relatively new, but they have shown a strong enthusiasm for this new type of investment.

 

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