Three Distinctive Elements of Forex

Forex is a huge market with a lot of distinctive elements that differentiate it from other form of businesses. However, when it comes to elements that can help newcomers to learn more about this market, there are three most important. It is imperative for new traders to fully understand these elements long before actually participating in the Forex trading. It is extremely difficult to interpret and operate within the Forex market as it aims at encompassing the entire globe.

Therefore, before opening a Forex account, you should strive to fully grasp the Forex trading system in order to become a successful trader. In this regard, it is imperative for you to get accustomed to three most distinct elements of Forex trading that are described as under.

• Functional:

The function of entire Forex market is to transfer purchasing powers from one country to another. That is, partners convert currency revenues in their domestic currency whenever a trade is made. It is quite obvious that purchasing power of one country can be weak if the purchasing power of other is strong. Another important function of Forex market is to prevent an exchange rate disaster and to obtain and provide credit for international trade.  Forex market is beneficial in the sense that it facilitates financing by offering credit and enables movement of goods among countries.

• Geographical:

Forex market is immensely famous among the traders thanks to the fact that it encompasses the entire globe. Investors take special interest in Forex because it is easily accessible for 24 hours a day, 7 days a week. In fact, someone will always be trading even in the remotest part of the world regardless of the time on which you are trading. Although, the major exchanges are London, New York, Singapore, Sydney and Tokyo etc. yet Forex is traded in all corners of globe. New trades can conceptualize the size and scope of Forex by understanding its geographical element. In fact, Forex is most attractive avenue for people to invest due to its sheer size and volume.

• Participant:

There are mainly two aspects of Forex that are clients and interbank. The interbank and clients are often referred to as wholesale market and retail market respectively. Both these categories further incorporate five different types of participants.

• Banks and non-bank foreign exchange dealers are the first type of participants. They sell at asking price after buying at bidding price. Banks earn up to 20% of their profits by trading currencies while increasing the efficiency of market as a whole.
• Investment and commercial firms as well as the individuals constitute the second type of participants. They invest with the help of Forex market in addition with using it for hedging thus reducing their own risks.
• Arbitragers and speculators are another type of participants that strive to take profits from Forex market. They act in their own self-interest and try to earn profit by involving least possible risk by seeking profitable rate changes.
• Treasuries and central banks are the fourth type of participants. They change or attempt to change the value of their own currency. They do not aim at earning profit but to influence the market and sometimes do this in cooperation with reserves. They want to influence their domestic currency in order to benefit from this change.

The fifth and last type of participants is the foreign exchange brokers. They are not partners in transaction but only facilitate trading. They earn profit by charging fees for the service they provide most often, in the shape of commissions.