Characteristics of the Forex Market

Foreign exchange is a currency other than the local currency which is used in settling international transactions and is also known as foreign currency. FOREX trading is a system of converting the currency of one country into the other’s currency. Therefore, it is the process of converting the national currency into another country’s currency and also transferring the ownership of money from one country to another country.

Characteristics of the Forex Market, Forex Market, Financial tips, finance, forex, lifestyle
Characteristics of the Forex Market
[ image: pexels.com by burak k ]

The various characteristics of the FOREX market are:

1. Electronic market

Foreign exchange market took place electronically that means the foreign currencies are being exchanged between the linked banks, dealers, and brokers electronic mode. Their main aim or purpose is to bring the buyers and sellers together for foreign exchange. Hence, the forex market does not have a physical place for making transactions.

2. Geographical dispersion

The other feature of the forex market is that does not found in one place that means, the forex market has been dispersed widely throughout the leading financial centers of the world. Hence, it can be found either in London, Tokyo, Toronto, etc.

3. Purchasing power

The forex market allows the transfer of purchasing power from one currency to another. Like for example- An Indian exporter sells the software to US firms for dollars and a US firm sells computers to an Indian company for rupees. In such transactions the settlement took place in their currencies i.e. Indian company took computers in rupees and U.S took software in US dollars. Hence, the forex market makes the settlement process easier between the countries.

4. Forex market act as an Intermediary

With the help of the forex market, the currencies can be exchanged in a more convenient way i.e. the currencies wanted and currencies earned with their respective countries. Hence, the forex market act as an intermediary between the buyers and sellers of foreign exchange.

5. Cross border transactions

Under the forex market, the maximum trading takes place in the form of cross-border purchase and sale of assets, and a few percent relates to the import and export activities. Thus, the total trading transactions that take place in the Forex market have 95% of cross-border transactions and 5% for import and export activities.

6. Risks minimization

The other special feature of the Forex market is that it helps the importer and exporter in the foreign trade to minimize their risks of trade. Thus, it can be done through “Hedging”. It also helpstraders to transact the business in an international market to earn normal profits.

7. Credit facility

The foreign exchange market helps various businessmen and traders in providing credit, such as banker’s acceptance or letter of credit. Thus, it helps traders and businessmen in the international market.

8. Liquiditymarket

The USD is considered the most traded currency among countries across the world and is highly liquid.

9. “Over-the-counter” market

As the forex market does not have a physical place to trade on and thus, considered as an unregulated market started over the counter by the bank through telephone.

Hence, these were the important characteristics of the Forex market.

No comments:

Post a comment

Please Leave a Comment to show some Love ~ Thanks