Forex markets

Introduction

Forex market refers to a financial market where different world currencies are traded. The main aim of the forex market is that it wants to aid in the facilitation of international trade. Since the countries taking part in trade use different countries, then, a right exchange rate has to be determined before any trading takes price.

Forex market trading

In this case, the volume and nature of trading is usually determined by the exchange rate regime in place. The most effective way of analyzing this market could be on looking of variables such as international trade between countries in a floating exchange rate regime where forces of demand and supply are left to predict the equilibrium exchange rate between different currencies, trading will be more open and competitive. However, in the managed float or the pegged exchange rates regimes, the prices of various currencies are fixed and thus not much activity is expected in terms of bargaining trying to come out with the best price.

Market participants

Like in the common goods and financial markets, the forex market has both demanders (buyers and suppliers (sellers) of foreign currency in as much as government may control the exchange rates, majority of participants in the market are usually from the private sector. The demanders for foreign exchange may include  students travelling abroad for studies, individuals seeking medical care from abroad, investors seeking to purchase machinery and other raw materials e.t.c. on the other hand suppliers of foreign currency may include international tourists and visiting a country, exporters of commodities from a country locals living in the diaspora who would love to remit some of their incomes e.t.c. for their part, though illegal, money launders are considered to be very efficient demanders and suppliers of foreign currency.

Speculation in the forex markets.

Speculation is the process of taking two part offsetting positions in two markets such that the net return is only the expected returns. In this case risks and minimized in that excess profits in one market are offset by equally large losses in the other markets. Speculation as an activity is a very important aspect of the foreign exchange markets and due to the numerous numbers of speculators, they can be able to influence or determine the exchange rates of different currencies in the forex market. The speculation activities may also include hedge funds which in principle use the same principle in their day to day activities.

Advantages of forex markets over stock markets

In comparison forex markets trading are far more advantageous than stock markets such aspects include around the clock trading. In essence the forex markets are often 24 hours a day expect on weekends when it is closed for speculators, this proves a very enticing opportunity to take advantage of all the world markets simultaneously in order to make a killing. Also, in forex markets, no commissions are charge for trading. The system is set such that bidding takes place and once one has won by gaining extra cents, no charges whatsoever are deducted from their earnings. This proves to be very enticing to hardworking businessmen and women.

Conclusion

Forex markets are very essential in currency in currency conversion to allow for smooth sailing in international trade and if taken seriously, it can be a very profitable venture for whoever invests in it.