- Dianne Phuong Nguyen
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The principle of FOREX is to help worldwide trade and investment so that ithelps businesses to exchange one currency to another. For e.g.: An Indiancompany allows importing US Based Company goods and they pay in dollars,although the businesss income is in rupees. So, in general expression we cansay that a party buys a quantity of one currency by paying the quantity ofanother currency.The FOREX trading started during the early 70s when countries graduallyswitched to floating exchange rate (where currency value is allowed to rise andfall according to the market status) from the previous exchange rate regime (Itis the way a country handles its currency in respect to foreign currencies andthe FOREX).The inimitable part of FOREX lies behind due to certain reasons:
- Its trading amount which has been increasing hugely.
- The tremendous liquidity of the share market.
- Its geological distribution.
- Its extensive hour of trading.
- The low margin income compared with other markets of unchanging income but the profit can be surely gained by large trading.
- And lastly the usage of leverage.
Theaverage turnover of global FOREX is expected to be $3.98 trillion, according tothe statement given by the Bank for International Settlements. Currently, FOREXis one of the major and the most liquid financial markets in the world. Thetraders who are included in this FOREX deal are central banks, currencyspeculators, different types of companies, governments and other financialorganizations. And it is certain to say that the FOREX markets are growingcontinuously as the volumes grew a further 41% between 2007 and 2008, accordingto the Bank for International Settlements.The FOREX trades are not centrally cleared markets rather there are number ofinter-connected marketplaces where different currencies are dealt. Depending onthe area where it has been placed and the market makers the FOREX rates aredifferent rather than a single exchange rate Banks throughout the worldparticipate in FOREX with main trading center such as New York, Singapore, HongKong, Tokyo and London.Changes occurs in FOREX trade due to actual economic flows and these prospectare due to the gross domestic products (GDP)growth, price rises (inflation), interest rate, budget session and othereconomic conditions and these major are being declared publicly on proper timeand date so that they can access at the same news.One of the major determinants of FOREX rates lies is the political conditionwhether it is internally, regionally or internationally and these had created adeep effect on currency market. These rates are liable to change due topolitical unsteadiness and anticipations about the new party which can alsocreate negative impact the growth of economy. Therefore the market psychologymanipulate the FOREX in certain ways which includes unsettlement of theinternational events, long term trends that may rise from economic or politicaltrends, Buy the rumor, sell the fact concept which allows the market beingoverbought or oversold and the economic numbers which can surely reflecteconomic policy and the numbers taken on a lucky charm based effect.