Essentially, the foreign exchange market is where currencies are transferred, traded and shared. Currencies are an extremely important part of everyday life for people around the globe, whether they are aware of this fact or not. Currencies need to change hands so that foreign exportation and importation can take place. Businesses large and small rely on the currency market to conduct trades, so Forex has a very important role to play in society.
If you living in the United Kingdom and want to purchase a product from France, either you or your business (you are employed by) has to pay the French for the product in Euros. Essentially, this means that the UK importer of the product would need to change the same value of UK pounds for Euros. The same process is applied in the travel industry. A Swiss tourist in Egypt cannot pay to look around the pyramid in Swiss Francs because it will not be accepted locally. Thus, the tourist will have to exchange the Francs for the local accepted currency, which in this case is the Egyptian equivalent, at the rate specified by a Bureau of Exchange.
CMC Markets are a company that offer advice and guidance no how to trade in Forex in many of the world’s markets. Their professional and straightforward will provide beginners and experts alike with the most up-to-date information so that the currency market can be used to your advantage.
The Different Types of Market
The most accessible and used market has usually been the spot market because it is the original asset that the other two markets are centred on ( the lesser used features and the lesser used forwards market). Historically, the futures platform has been extremely popular for traders due to the fact it offers investors the opportunities to trade over longer stints. Nonetheless, with the advances in digital technology, the spot market has definitely been reborn, like a phoenix from the ashes.
Currently, it is more popular and more frequently used then both the opposing markets. Independent investors and speculators now use the spot market as the preferred option of trading in Forex. When one refers to the currency or Forex market, they usually mean the spot market. The other two aforementioned markets tend to more widely used by businesses who require a hedge process to cut their foreign exchange risks and put them out to a date in the future.
What Are The Lesser Used Markets?
Both of the above are extremely different to the popularly used spot market, as they do not trade in current currencies. Essentially, they are markets that focus their attention on contract, which represent claims of a particular currency type, a specified price per unit and a date in the near future to set an agreed price.
In the less used forwards platform, agreements are purchased and sold OTC between to amicable parties, who together determine the specific points of the agreements between themselves.
Alternatively, in the futures platform, agreements are purchased and sold based on a predetermined quantity and an agreed settlement date on the public products platform. In the united States of America, an association known as the NFA (National Futures Association) regulates and sets the rules in the futures market. Futures agreements have specific outlined stipulations such as the amount of units being sold and traded, delivery and settlements dates and details and minimum price stages that cannot be altered. Basically, this exchange has a sole purpose: to play the role of the counterpart to the trader, providing clear clearance and settlement in a Forex exchange.