Foreign Exchange
Forex is the name known for foreign exchange. It is the practice of trading two (only two) foreign monetary units simultaneously. To date, it is said to be the largest and most influential commercial or market globally speaking. It includes exchange transactions between international or local banks, central banks, multinational companies or businesses, the government and any other commodity markets.
FACTORS INVOLVED IN FX:
Financial Speculators:
Essentially, it affects the buying, holding, selling of stocks or bonds, any kind of collectibles, real estates, monetary units, and any form of virtual documents representing legal agreements involving monetary units. This is primarily to profit from fluctuations. These factors in foreign exchange are called the financial speculators.
Currency:
It is the monetary unit in a place used for trading commodities or services.
Participants:
These involve the government, international banks, medium to large business entities, central banks, multinational corporations, institutions and even retail traders.
Financial Markets:
It comprises of any kind of commodity market which facilitates trades in financial products such as stocks, shares or bonds for the purposes of immediate consumption.
CHARACTIRESTICS
Foreign exchange market is said to be over-the-counter due to the fact that there are multiple participants and markets are interconnected in trading monetary units. There is therefore no sole dollar rate. There appears to be multiple dollar rates depending on what bank or market it is traded. However, to prevent arbitrage or taking advantage of the price differential between two or more markets, it is a practice that rates are often close to each other.
Foreign exchanges usually are influenced or manipulated not by one institution or market but rather is dependent on the actual monetary flows, changes in the fluctuations or growth of Gross Domestic Products (GDP), microeconomic and macroeconomic conditions, budget deficits, governments and even local events or conditions.
MAIN LOCATIONS OF TRADING
The three most popular trading centers are Tokyo (Japan), London (U.K), New York (U.S.)- which notes the participations of the three main continents, the America, Europe and Asia. These continents takes turns in trading sessions, for instance, if the Asian trading session begins, the American trading sessions ends and as the Asian trading session ends, trading session in Europe begins.
HISTORY
In 1876, gold trading is the system used in most markets in exchange for goods and services. As an economy further develops, it imports or trades more commodities and services hence the lost of gold reserves. As a result, interest rates hike and slowed economic activity to the point that a recession occurred.
As the need arises, the Bretton Woods Agreement was established which gave way to stabilizing dollar rates per ounce of gold.
After the World War I and World War II, trading system between nations rapidly development due to post-war construction which eventually made high marks to the movements of capital. As a result, the Bretton Woods Agreement established in 1971 was finally abandoned and the dollar was no longer exchanged for gold. The new set up gave way to speculators and rise of financial instruments, open trade and market deregulations, hence the foreign exchange system.