Forex
Forex is the other name of foreign exchange market which is a global, worldwide-decentralized financial market for trading currencies. The foreign exchange market actually determines the relative values of different currencies and by enabling currency conversion the foreign exchange market assists international trade and investment. In this kind of market transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern forex market began building during the 1970s after three decades of government restrictions on foreign exchange transactions.
This market is unique in its own value; its huge trading volume representing the largest asset class in the world leading to high liquidity, this market has low margins of relative profit compared with other markets of fixed income, it has a continuous operation, 24 hours a day except weekends. Its trading time is 20:15 GMT on Sunday until 22:00 GMT Friday; this market has different factors which effect exchange rates, to enhance profit and loss margins and with respect to account size this market uses leverage.
This market is the most liquid financial market in the world where traders include large banks, central banks, institutional investors, currency speculators, governments, retail investors and other financial institutions. As foreign exchange derivative products have capital controls so some governments of emerging economies do not allow their exchange. Despite having some capital controls countries like, South Africa, Korea and India have established currency futures exchanges. In the context of the foreign exchange market, traders liquidate their positions in various currencies to take up positions in safe-haven currencies, like the US Dollar. There are many financial instruments used in this market such as Spot transaction, which is a two day delivery transaction, this trade represents a “direct exchange” between two currencies. In a Forward transaction money does not actually change hands until some agreed upon future date. In Swap transaction two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. In this kind of market risk aversion, which means when a potentially adverse event happens which may affect market conditions is caused when risk averse traders liquidate their positions in risky assets and shift the funds to less risky assets due to uncertainty.