1min read
Published on: Jan 10, 2024
#Financial Markets
The Forex market is one of the largest financial markets, with millions of traders buying and selling several global currencies daily.
This market launched before World War I, when several currencies, which were tied to gold or silver, possessed fixed values.
During post-World War II, most currencies were pegged to the U.S. dollar under the Bretton Woods system, where the dollar was backed by gold.
In 1971, the U.S. abandoned the gold standard, letting its currency float freely against others. Subsequently, in 1973, the most significant currencies adopted floating exchange rates under the Smithsonian Agreement.
Since then, the Forex market has grown significantly due to technological advancements, financial liberalisation, globalisation, and diversification.
The Forex market, also known as the currency market, is a global marketplace where currencies are traded.
It's the world's largest and most liquid financial market, with a daily trading volume of over $10 trillion, and a total market capitalisation of $2.5 Quadrillion as of 2023.
It operates 24 hours, five days a week, across various time zones and financial centres. Participants trade currencies for purposes like hedging, speculation, commerce, or tourism.
In the Forex market, currencies are traded in pairs, which means that the value of a currency in a pair is related to the value of the other pair. Today, the most traded pairs include EUR/USD, USD/JPY, and GBP/USD.
Not all Forex markets are the same, various types include:
As the world's most traded market, the Forex market boasts of certain features which are:
The forex market is a free market, meaning that no central authorities are involved. Here in this marketplace, transactions happen electronically via banks, brokers, and dealers, thereby making it easy for individuals to trade in this market.
The prices of currencies traded in the forex market are determined by supply and demand. They are also transparent and accessible to all parties in the market via digital exchanges like BitDelta.
The forex market is a diverse marketplace that involves various participants like the central banks, commercial banks, corporations, large trading firms, multinationals and even independent brokers.
These market players trade multiple types of currencies like major, minor, and exotic cryptocurrencies during trading hours.
In this market, participants can trade more significant amounts than in their accounts, magnifying profits and losses — economic data, events, interest rates, and more influence the market.
As previously mentioned, the Forex market is not controlled by a single entity - this market thrives through a series of participants, which can be cooperative and non-corporate bodies.
However, here are the main pillars that control the forex market:
1. Interbank Market
This refers to the major banks in a country: they facilitate the bulk of currency trades.
Transactions occur electronically through platforms like Reuters Dealing and EBS, playing a pivotal role in market liquidity and price determination.
Moreover, these banks provide liquidity and play a massive role in the price determination of the currencies.
2. Central Banks and Governments
The central bank and government of any country are responsible for the monetary policies of that country, and these institutions determine their currency's value.
Their interventions, through actions like buying or selling coins, can directly impact exchange rates. In summary, they dictate currency value through monetary policies, interest rates, and interventions in the market.
3. Large Trading Firms & Exchanges
Large multinational corporations like Berkshire Hathaway and Hedge funds influence the demand and supply dynamics based on their business activities like day-to-day trading, etc.
4. Independent Contractors
These contractors and solo traders include retail traders, speculators, and others who trade currencies for their accounts. Although smaller in scale, their collective actions can influence market trends.
For example, if these groups of people buy a particular currency in higher amounts, this can increase the value of that currency. They also influence the market by reacting to trends, sentiments, and signals from various sources.
So there, you have it. These pillars influence or, in some cases, control the Forex market. Although no one holds the Forex market, it is essential to know that there are some strict rules to follow if you want to trade successfully in this market.
Trading Forex has been made relatively easier thanks to BitDelta.
BitDelta is a cross-asset exchange that allows you to trade various asset classes like foreign currencies, commodities, stocks, crypto, bonds, etc. On the BitDelta exchange, multiple assets are listed, and investors can trade any asset class or currency with ease.
Sign up to BitDelta today to start your trading journey now!
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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