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Foreign Exchange Definition
Foreign exchange (Forex) is the cross-country exchange of currencies and is, single-handedly, the largest and most liquid financial market in the world. With an estimated $1.5 trillion in currencies traded in a single day, it eclipses the trading of other types of commodities. Unlike other commodity trading, Forex has no centralized exchange and is traded primarily through banks, brokers, dealers, financial institutions, and private individuals. Due to this ability for financial institutions to trade Forex, the Forex market is open 24 hours, 5 days a week (closes Saturday morning).
Prior to the late 1990s, Forex trading was only the practice for institutional traders and even though retail traders had access to trade the Forex market, only recently has it become popular and more common for individuals to trade Forex for profit. Most of the world’s different country currencies are free-floating; meaning they retain an individual value and will appreciate and depreciate against other currencies. Currencies are always listed in pairs as they need another currency to benchmark against.
Reasons for Trading Forex
Trading Forex has many purposes and you’ll be surprised at the many levels traded that impact you and you’re not even aware of it. For every purchase you make, the contents, ingredients, by-products, parts, or materials may not necessarily be from a domestic source. It could have been bought internationally and as such the exchange of foreign currency would have had to be taken place.
From a financial perspective, some people may trade the Forex market for profit. By taking a cross-currency pair, they may exchange currency to a foreign designation hoping for domestic currency values to depreciate, thus when you convert it back you will receive more than you initially started.
For international importer or exporter of goods and services, there are great opportunities by having access to the international market. However, with fluctuating international currency rates, payment can sometimes be difficult. Initially, companies make a sale for an agreed price, then on the day of payment the agreed value is significantly less than agreed to, due to a currency fluctuation is known as foreign exchange risk.
You will find all types of businesses, from large financial institutions to small retail freight forwarders will practice foreign exchange hedging. Simply put, these companies will put in place measures to ensure that their agreed payment value will represent the same value at the day of payment regardless of currency value fluctuations.
The Eight (8) Major Currencies
Internationally, there are eight (8) currencies that are traded more than other currencies. These are often referred to as Majors. These currencies are as follows:
- USD – Unites States Dollar
- JPY – Japanese Yen
- GBP – British Pound
- CAD – Canadian Dollar
- EUR – European Currency Unit
- CHF – Switzerland Dollar
- AUD – Australian Dollar
- NZD – New Zealand Dollar.
Certain parts of the world have part of their Saturday to trade, as it’s still Friday in other markets.
Financial institution in these countries may be dealing with the Forex market during their work hours, the Forex market is open and trading 24 hours, 5 days a week. For someone living in the East Coast of Australia, the market hours for the corresponding markets are outlined below:
New York session opens at 05:00 pm and ends around 2:00 am
Sydney session starts at 3:00 am and ends around 12:00 pm
Tokyo session begins at 4:00 am and ends around 12:00 pm
London opens at 12:00 pm and ends around 09:00 am.
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HotForex is an award-winning forex and commodities broker, providing trading services and facilities to both retail and institutional clients. Through its policy of providing the best possible trading conditions to its clients and allowing both scalpers and traders to use expert advisors unrestricted access to its liquidity, HotForex has positioned itself as the forex broker of choice for traders worldwide.
HotForex offers various account types, trading software, and tools to facilitate individuals and institutional customers to trade Forex and Derivatives online. All Retail, Affiliates, and White Label clients have the opportunity to access various spreads and liquidity via state of the art automated trading platforms. HotForex provides an unparalleled variety of account options that clients can select to enjoy a tailored trading experience that perfectly suits their needs. Coupled with superior trading conditions and lightning-fast execution, HotForex provides all the tools and services needed for clients of any level to realize their trading ambitions.
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