How forex market works?

The Forex market is the largest financial market in the world where currencies are traded, and it has approximately $5 trillion trade volume on a daily basis in this market. The forex market is typically known as the FX market or foreign exchange market.

Decentralized market place

The unique thing about the forex market is that there is no central marketplace. Other financial markets like the commodity market and stock market, currencies are not traded on a central marketplace or exchange. It is a decentralized market that allows a significant number of traders to access and trade it.

Currencies pairs

Currencies are traded in pairs in the forex market, and these pairs are always written in a specific manner. For instance, the Euro against the US Dollar would be written as EUR/USD. The trading happens between two parties; this is happening between “Big Players” and banks at a high level. One party buys one currency lot with another lot, e.g., buying the Euro lot with lot of Dollars.

What affects the value of the currency?

Movements in the forex market are caused by the trading of currencies – buying and selling currency pairs. Professionals in the forex market observe numerous areas and finally make speculations over the movements. The different areas can be split into two categories;

  • Change of risk environment – geopolitics, economic agreements, elections, and terrorist threats.
  • Economic and new releases impact the interest rates – inflation reports, GDP numbers, unemployment reports, oil prices, and Central Bank rate decisions.

How travelers come into the forex market

Individual travelers come at the very bottom of the currency pyramid. They look for a small amount of foreign currency for a trip to a foreign country. Meaning, the travelers commonly get the worst currency rates in the forex market to have less money to spend on their journey.

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