What is Foreign Exchange? The concept of foreign exchange "refers to the money flows between countries, so as to pay off the creditor's rights and debt relationships between international parties. It is a specialized business activity. It is short for international exchange (Foreign Exchange). And its static meaning refers to all assets expressed in foreign currencies.
Foreign exchange market is the place for global currencies bought and sold. Foreign exchange market is huge, according to the size and liquidity, the foreign exchange market is far exceeds the biggest domestic market, such as the United States or the United States stock market futures market. The latest surveys show that: 52 countries, according to data provided by the monetary authorities global average daily market turnover is about $3 trillion.
Foreign exchange market exists, mainly due to the international trade and risk aversion, as well as the needs of speculative trading in cross-border flow of goods and services of the company must be into the foreign exchange market, on the one hand is for the currency exchange, on the other hand is to protect the exchange rate fluctuates. Speculative trading occurs because there are traders believe that will bring them profit when the exchange rate fluctuates.
Although there is no detailed data to distinguish the trade safety and speculative trading activity in the proportion of the foreign exchange market, but the latter on the amount of dominant is the fact that does not dispute. The main causes of the surge in the more traditional asset classes such as stocks and bonds in foreign exchange outside of an asset, and the role of hedge funds continuously. In addition, exchange rate and interest rate volatility, corporate globalization and the development of the telecommunications infrastructure, as well as the birth of new foreign exchange trading tools and development. FX market is different with commodity and stock market as it is an intangible market. It is like an organized frame, the attendees in the frame are trading through telephone and net-work. Besides the weekends, the foreign exchange market is operated on the financial center 24 hours a day.
In this market, you can't see the real currency, all trading are turned out from one bank account to another bank account like an electronic transfer. The OTC market trading means that the buyers and the sellers make deal by talking about the price, the amount and the settlement date.
On a global scale, the main trading markets include Sydney, Tokyo, London, Frankfurt and New York. The time is from 5:00 P.M. Sunday to the next Friday 5 P.M. at US east time. The foreign exchange market begins from Sydney time, with the rotation of the earth from west to east, making the foreign exchange market trading in 24 hours a day.
Each currency pair will involve two different currencies. Buy one currency while selling another currency. On the foreign exchange market, the currency with the mainly trading volume include EUR/USD, USD/JPY, USD/CHF and GBP/USD.