Foreign exchange market - What is it? This article will discuss and give you an introduction into the biggest financial market in the world. I will give you my own definition and equip you with tools such as contemporary news and articles about the market.
Foreign Exchange Market Definition
The foreign exchange market can best be defined as: An OTC financial market for trading currencies. Countries, companies, institutions and individual traders use this market to exchange one currency to another. The buying and selling of a certain currency (together with a myriad of other financial factors) in the market determines its relative value.
The above gives a general definition to the foreign currency exchange market. But what is its purpose? And what functions does it serve?
What is Foreign Exchange Market?
Ok, so we understand that this market is the place to exchange one currency to another. But why do we need it? Isn't that why we have money exchange vendors at the corner of every street? Well, the answer is NO.
This financial market was created with one purpose in mind: To allow businesses and even Governments a platform which will assist in international investments and trade.
In addition the exchange market is unique because it offers 24 hour trading. This means that, not like other financial markets which are closed during the nighttime, foreign exchange traders can trade at any hour of the day, even during the night. The only times which trading is closed is during weekends.
Foreign Exchange Markets - how many are there?
There is only one foreign exchange market in the world. It is a decentralized over-the-counter type of market. This means that financial centers from around the world serve as anchors for many traders who are also global buyers and sellers.
Financial centers are specifically large banks. However, if a regulated entity accumulates enough money it can also become a sort of financial center and act as an additional anchor for worldwide currency exchange trades.
Now, I believe that all of the above is really useful because - if you are looking to save when traveling, or even become a trader one day, then you can't understand foreign exchange without learning all of the above.
So how does the above effect us? Needless to say, that the value of a currency goes up and down constantly on the market. This value ultimately affects the exchange rate that we all pay when going abroad or when buying something from a foreign country online.
How do we get the edge on when is the best time to exchange our money? We follow foreign exchange market news. For someone who is not a trader and who does not see financial charts and systems before him all day long, the best way to determine if the time is right to buy a foreign currency would be to tap into the finance news centers in your local country and see what's the latest word about the currency you are interested to buy.
For residents of the U.S you can check out this market news page (from the Chicago Tribune)
My personal recommendation is this: always check up the latest financial news about the currency you are looking to exchange your money into. For example, if you were looking to invest, travel or buy something from Egypt this last few weeks you would have received tons of related information about foreign exchange rates of the US Dollar buying capability on the Egyptian pound.
So yes, international political news also affects the value of a currency. Revolutions, economic breakthroughs and discoveries are all reported on in financial newspapers and articles online and this is something you should definitely follow if you are interested in converting currencies.
To sum it up, all of the above is basic but priceless knowledge you should carry when your goal is to invest or buy something from a foreign country. This is why learning about the foreign exchange market is so important.
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