The foreign exchange market is global, and it is conducted over-the-counter (OTC)
through the use of electronic trading platforms, or by telephone through trading desks.
Some shorten the term to “forex” or “FX”.
The OTC market is also known as the “spot”, “cash”, or “off-exchange” forex market. (A
spot transaction refers to an exchange of currencies at the prevailing market rate.)
Futures and futures options on different currencies can be traded on centralized boards of
trade, or exchanges, such as the CME Group. The spot/cash/OTC/off-exchange forex market is not a market in the traditional sense, because there is no central trading location, or
exchange. Rather, it is an interconnected telephone and electronic network of bank traders,
dealers, brokers and fund managers for electronic transfers of money from one account into
another account.
The interbank market is one in which huge banks, insurance companies, corporations and
other financial institutions manage the risks associated with fluctuations in currency rates
by trading in large quantities.
The secondary market – the OTC market – has developed more recently, permitting retail
(smaller) investors to participate in forex markets. The OTC market has many of the same
characteristics of the interbank market but it doesn’t provide the same prices, as the size of
trades, and the volumes, are much smaller.
Trading forex is buying one currency while at the same time selling a different currency.
Some companies who do business in other countries use forex markets to convert profits
from foreign sales into their domestic currency. Other reasons for trading forex include
speculation for profit, or to hedge against currency fluctuations.
No comments:
Post a Comment