In ancient times, people operated by the principle of barter and traded goods with each other as forms of payment. Today, the world runs on the power of currency, and there is a large variety of it across the world. The rise and fall of the values, as well as the exchanges of these currencies offers immense opportunities for trading. That is why the Foreign Exchange Market, also known as the currency market, is a hotbed of currency trading.
Significance of the Currency Market
The currency market is essentially a global, decentralized market for the trading of currencies. The foreign exchange rates for every currency are determined by the currency market. It includes all matters of currency trading such as the buying, selling, or exchanging of currencies at their present value or a decided value.
It is important to note that the currency market is not a single place or location, but is rather used to refer to a system. It is made up of a number of financial centers where foreign exchange transactions take place round the clock.
The foreign exchange market is also an important reflection of the economies around the world. The price of one currency compared in terms of another currency is known as its exchange rate. This exchange rate is a vital indication of the economic health of the country the currency belongs to. A high exchange rate for a currency gives more economic advantage to that country while a low exchange rate denotes the opposite.
Functions of the Currency Market
In order to trade prudently with oil, it is important to familiarise oneself with certain features about the crude oil market that makes it unique:
- – Transfer: One of the main functions of the currency marketis to settle payments by transferring foreign currency from one country to another. It converts one currency into another and facilitates international transactions.
- – Credit: The currency marketalso provides credit in matters of international trade. For instance, an importer can utilise the credit from the currency market to purchase foreign goods and pay off later.
- – Hedging: Frequent fluctuations in exchange rates can cause considerable damage to parties and industries depending on these rates to stay constant. Therefore, currency markets provide the facility to such parties to hedge foreign exchange risks. A forward contract is an agreement to buy or sell foreign exchange foranother currency at a predetermined price on a fixed date in the future.
The currency market is also a financial trading market, with large-scale trading taking place on a regular basis. About $5.3 trillion a day, that is $200 billion an hour, is traded in foreign exchange in the currency market . It is also an extremely liquid market, which makes it an ideal place for traders to purchase and sell currencies.
The currency market is largely unregulated and therefore traders are not held back by tough regulations. It also works on a 24×7 timeline, providing traders immense flexibility. Moreover, due to the large number of currency pairs, there is a wide variety of trading options available to a potential trader. All of these features give currency trading a considerable advantage over other trading avenues such as stocks and bonds.
Trading in the currency market is typically done in one of three ways: spot market, forward market and futures market. In India, trading in the currency market primarily takes place on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and Multi Commodity Exchange Stock Exchange (MCX). The Indian currency trading time extends from 9 am to 5 am. As a potential currency trader, one requires neither cash nor equities to conduct currency trading.
The currency market, more popularly known as the Foreign Exchange Market, is one of the largest, most active markets in the current age. Making the right trade investments in the currency market can reap huge rewards for the trader. But like any investment opportunity, one needs the right trading strategies and a good amount of time and patience. To that effect, Angel broking allows you the benefit of practising with a trial trading account. You can make mistakes with the virtual money until you gain enough experience and confidence to trade in the currency market in real life.