Give a thought to this: what makes the forex market so unique that none other like equities, commodities or even the bond market can match either individually or all put together? I think everyone who wishes to have a share worth his or her salt of action in the forex market needs to know this.
The Unique Characteristics of Forex Market
Forex market allows trading in all major world currencies seamlessly. US Dollar, Euro, Japanese Yen and Great Britain Pounds are the few currencies that account for over 80% of the daily forex trade. Now let's see what other features attribute to make this so unique.
1. There is no single exchange market for trading foreign currencies yet all of them are so closely connected to each other ('over the counter' trading) that the differences in values can hardly be considerable, at least, for a retail trader.
2. There is no commission involved in the foreign exchange trading although there is low transaction costs involved. One reason for this feature is you are trading currencies and not negotiable instruments which are always virtual in nature at the point of trade time.
3. Forex market has a continuous nature. Global time zones and universal nature of currencies have facilitated the continuous nature of this. When markets in Asia close European markets open and when they close there is American market to take over. The next cycle begins with the Asian markets taking over from American markets.
4. Largest daily turnover- over US Dollar 3 billion which is ten times bigger than turnovers for all equity exchange markets put together.
Ponder the point number one again; London, New York and Tokyo are the top trading markets with many smaller markets and countless banks and operators functioning across the globe in relativity and interconnection to these big three. Thanks to the continuous nature and 'over the counter' trading facilitates quick decision making for traders without waiting for the markets to open the next day.
'Over the counter' trading also brings in the benefit of arbitrage (overnight differential interest) since there is no single dollar rate over the world depending on significantly great number of factors that affect the local Dollar demand and the local economy. Beginners need to understand the mechanics of economy that play roles here. These factors include the GDP, budget, trade deficits, rate of interests and inflation amongst other macro economic issues.
An interesting piece of information: regardless of trends, US Dollar is involved in about 90% of transactions.
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