Structure of foreign exchange market
The foreign exchange market is divided into three main sections: currency market, interest rate market and financial market. The currency market is all about the currency of one nation being traded. Although we communicate with each other in English and with regards to currencies, understanding the geography of the world is not an issue. As long as the currency is the same we are able to communicate in English. The interest rate market is all about the standard of currency being offered by another nation. This is done through the range of interest rates.
These range from extremely low base rates to high leverage products. The financial market also serves as a financing system for other nations. When the borrower is a foreign nation they will lend money to the borrower. This is called a ten-year term. When the lender is a domestic bank they will lend money to the borrower. This is called short-term lending.
The foreign exchange market is very liquid and also serves as a place to buy and sell currencies. When a foreign nation desires currency in exchange for a domestic currency they simply call upon the foreign exchange market to purchase or sell the currencies. This is facilitated through the foreign exchange market. Today, there are more than 190 currency dealers all over the world who have their outlets in the foreign exchange market. Many of these dealers are opening new outlets everyday. To be sure, the foreign exchange market is one of the most liquid in the world.
It is quite possible to find a foreign exchange broker two or three hours after the official opening hours of a financial hub. Foreign exchange buying and selling is not new. It has been a part of the market since the colonial era. When British traders first started moving in the foreign exchange market they quickly saw a need for currency exchange services. Today, many of the world’s currency dealers are international banks and central banks. Their sole objective is to sell currency at the right time and place.
There are many reasons why a trader may decide to buy or sell currencies. They may be faced with several transactions to complete before the start of the trading day. They may also be faced with several other transactions required for the trade. These transactions make up the daily transaction volume of the currency dealer. The trader may decide to buy the currency through a dealer’s POS system or Trading Platform or both. The dealer will purchase and sell currency for a fixed period of time and at a fixed price.
When the dealer receives the transaction it will either sell the currency or it may be the currency being sold. If the transaction goes through then the dealer will purchase the currency and will keep the purchase price. If the transaction does not go through then the dealer will not receive the currency. This is a money loss and it is the right move. Trading with the dealer is risk free. This transaction is accepted by all the major currencies including the US dollar, Japanese yen, British pound, Canadian dollar, Swiss franc, Australian dollar, and three-month US Treasury note.
The dealer will keep the purchase price and the purchase price only. This transaction is not subject to transaction fees or brokers. It is a guaranteed transaction.