Foreign Exchange or the Forex market is one of the biggest markets in the world in the current times. While the Forex market deals with the exchange of currencies there are other financial markets that deal with various other things. Other major market holder is the Stock Exchange Market which deals in the trade of stocks and bonds. Then there is Gold Market, which trades with gold, silver, bronze, platinum, etc. Yet another market is the Futures Market, this market deals in things like oil, cotton, agricultural products, etc. Then there is interest market and also option market. But as mentioned earlier out of all these markets, Foreign exchange market is the one that holds a major market share.
Foreign Exchange market deals with the trade of currencies. The existence of the Foreign exchange market is based on a lot of factors. Few of them are mentioned below.
Trade is one of the biggest factors that influence the Forex market. Import and export of goods and services from one country to the other requires the exchange of currency. If suppose a commodity is to be bought from the U.S. by an Indian trader. He will have to pay the amount in dollars. This is to say that in this business people need to exchange different currencies in order to keep their trade going. Therefore the currencies that they have need to be converted into the currency of the country where they wish to buy the products or services from. This is where the role of Foreign Exchange Market comes in.
– Fluctuation in the Exchange rates
There is a speculation in the exchange rates depending upon the demand and supply. The more a currency is in demand the higher would be its value and vice-versa. Therefore, based on this, there is speculation in the Forex market.
By means of this method the chances of risk are minimized. Hedging is a technique used by various Foreign Exchange traders in order to sustain in risky situations. This is a very useful tool for traders. Hedging does not mean that the risk is lowered in terms of fluctuation of exchange rates. But it is a tool that offers the relaxation of trading freely as even if there is a risk of market trend going downwards, one will not be in much loss.
– Development of Foreign Exchange Market
The Foreign Exchange market has gained momentum slowly and stands tall in the financial sector in today’s date. The speculation of the Exchange rate is increasing at a fast speed. It is this speculation that has given rise to the number of investors in this market. Fluctuation is one factor that shows that this market is full of opportunities. This is the sole reason why more and more individuals these days are investing in the Forex market and the market is growing at a fast pace.