Forex and Liquidity
The foreign exchange or Forex market is an over the counter electronic market for the trading of global currencies. This market settles foreign currency rates for each currency based on requests for trade from any of its participants. It includes all the aspects of purchasing, selling and trading currencies in current or decided prices.
Every transaction in the foreign exchange is done through the exchange traders who are located in different centers around the world. The transactions are usually in pairs such as the U S Dollar/Japanese Yen or the U S Dollar/Swiss Franc. These trades are usually done to trade the different currencies in the same way as they are done in the stock market. Each currency pair is said to be the “spot” price of that currency with the difference being the day or night trade. With this setup, there is enough time to buy and sell the currencies depending on the current demand for those currencies and the current price.
The foreign exchange or forex is made up of a number of countries like the United States, Japan, European Union, Australia, Canada, and China. Most of the trade takes place in pairs like the USD/EUR and the USD/CHF. One of the largest pairs in the market is the USD/JPY.
Forex trading is also done through the currency futures market. This is another exchange where the major players are the large banks and brokerage firms. The main function of these companies is to “hedge” their currency exposure by using exchange traded funds (ETFs). Some of the largest ETFs include the I Directional Trading ETF, the FAP turbo Forex ETF and the EFT I Directional Trading ETF. All of these ETFs are primarily represented by large banks and other large financial institutions including the US Federal Reserve.
Another way that investors participate in the Forex is through leveraged trading. Leverage is defined as the ability to increase the amount of money that you own by purchasing more shares. In Forex leveraged trading, the investor will trade using large amounts of money. The leveraged trader is able to increase his or her investment with each tick, as the value of the shares increases. Usually, most of the Forex pairs that have very high liquidity are leveraged and traded on margin.
Forex markets provide opportunities not only for retail traders but also for institutional traders and other investors. There are also brokers who are specifically involved in the Forex exchange markets. These brokers have access to different currencies and liquidity pools. In most cases, they are brokers who have been in the exchange business for many years. They are called full service brokerages and do not specialize in specific Forex pairs but are able to execute transactions for many different traders and investors.