Forex Capital Markets and Foreign Exchange Transactions
Forex capital markets are foreign exchange markets where the currencies are been bought and sold continuously for profits. The capital markets of Forex are present globally and transactions are non-stop in this Forex cash market. Whether its Sydney or Tokyo, one would find aggressive Forex dealers and brokers peering into their computer screens and on the telephone for minor changes that might affect this currency trade.
The Forex trade is carried out for profits that can be gained by buying and selling of the currencies. Currencies are always bought and sold in pairs. Let us take an example to clarify the Forex deal (all figures are samples only).
A trader trades in EUR/USD (euro vs US dollar). He purchases 10,000 euros, paying 9,600 USD, on January 1 when the EUR/USD rate is 0.9600. Then he sells these euros at the market rate of 1.1800 on August 1. Therefore, he gets 11,800 USD. Thereby making a cool Forex transaction profit of USD 2,200.
Since all currencies are bought and sold in pairs, you need to decide the pair of currency that you would like to do your currency transactions in. In this example EUR is the base currency and the USD is called the quote or the counter currency. If you have bought euros (simultaneously selling dollars), then you have based your decision on the fact that euros may appreciate in the future. Therefore, by selling euros back into dollars you would be getting more dollars and thus making a profit.
If your assumption is that the US market is going to appreciate, then you would placing a SELL trade on EUR/USD. Therefore, you will sell euros while (simultaneously buying dollars). These US dollars may be sold at a later stage to book a profit.
Operating in the financial and Forex trade, it is important to understand that there are many factors that affect the Forex dealing. The business market conditions, the political scenario, threat of climatic disasters or impending farm output increase. All these factors play a crucial role in the Forex markets.
Forex dealers trade on Forex trading platform or a session. These is sophisticated software that provides the Forex dealers with real-time news and analysis on the currencies that they are dealing in. On this, they execute buy and sell orders as well as stop-order. Of course, these are also linked to the Forex margin account. Thus, it gives the Forex dealers ample leeway to make transactions with a small investment. Forex trading is competitive market where more credit worthy the institution or the dealer, the better their source of information and quality of data is. Therefore, this helps them to make better deals in the currency transactions and make higher profit.
by Gary Berg