The Forex market has been major facilitator of global trade. People from across the globe can purchase goods and services from countries whose currency they do not have. This is because the markets attach a relative value to various currencies in comparison to the major currencies. These markets are operational everyday save for weekends.
Assuming the absence of this mechanism, trade between people in different countries would be complicated. Take the example of a buyer in Africa and a seller in Asia. They would have no common denominator of determining the values of the goods and services they are purchasing. This would further complicate trade and cause a lot of misunderstanding.
In the foreign exchange markets, there are buyers and sellers. Those in need of a currency they do not have are in a buying position while those in a position to sell a currency that is required by a buyer are in a selling position. The buyer exchanges his or her currency for a given number of units of a currency offered by the seller. Profit margins are also allowed.
Huge amounts of cash are traded in this way everyday across the globe. The operations of this market go on round the clock except on weekends. As a result, the transactions that take place account for a huge chunk of global financial trade. Compared to other businesses, the profit margins from this line of business are smaller. Losses sometimes occur and leveraging is used to mitigate the effects of losses.
The diminishing profit margins in this line of trade have two explanations. One reason for this phenomenon is the expanded knowledge base of the various market players. This could be as a result of accumulated experiences over the years. The development of web based services has also contributed towards this front. Information is nearer than ever for those who need it.
When this type of trade was introduced, governments preferred fixed exchange rate systems. With calls for deregulation over time, fluctuating exchange rate systems appealed more. However, to protect all the players involved, new laws aimed at protecting their interest have been developed on a continuous basis.
Forex markets have greatly contributed to international trade. The numerous strides taken in this area over the years are directly attributable to this. To safeguard the gains made over the years, rogue market participants should be checked. This can be achieved by coming up with new laws to provide for this.
Assuming the absence of this mechanism, trade between people in different countries would be complicated. Take the example of a buyer in Africa and a seller in Asia. They would have no common denominator of determining the values of the goods and services they are purchasing. This would further complicate trade and cause a lot of misunderstanding.
In the foreign exchange markets, there are buyers and sellers. Those in need of a currency they do not have are in a buying position while those in a position to sell a currency that is required by a buyer are in a selling position. The buyer exchanges his or her currency for a given number of units of a currency offered by the seller. Profit margins are also allowed.
Huge amounts of cash are traded in this way everyday across the globe. The operations of this market go on round the clock except on weekends. As a result, the transactions that take place account for a huge chunk of global financial trade. Compared to other businesses, the profit margins from this line of business are smaller. Losses sometimes occur and leveraging is used to mitigate the effects of losses.
The diminishing profit margins in this line of trade have two explanations. One reason for this phenomenon is the expanded knowledge base of the various market players. This could be as a result of accumulated experiences over the years. The development of web based services has also contributed towards this front. Information is nearer than ever for those who need it.
When this type of trade was introduced, governments preferred fixed exchange rate systems. With calls for deregulation over time, fluctuating exchange rate systems appealed more. However, to protect all the players involved, new laws aimed at protecting their interest have been developed on a continuous basis.
Forex markets have greatly contributed to international trade. The numerous strides taken in this area over the years are directly attributable to this. To safeguard the gains made over the years, rogue market participants should be checked. This can be achieved by coming up with new laws to provide for this.
