How does the Foreign Exchange market work?
The Forex or Foreign Exchange market is a global and decentralised market in which currencies are traded. Núria Rambla, CEO Executive Assistant at 11Onze, explains how the market that moves the largest volume of investments works.
Forex, from the union of the words Foreign and Exchange, is also known as FX or Foreign Exchange Market and is the largest financial market in the world. It is a global market for currency trading where the world’s major currencies can be traded 24 hours a day, Monday to Friday. But as Rambla points out, “we should not confuse the foreign exchange market with the stock market, they are different”.
It is a highly liquid market where many players and investors from all over the world operate, such as banks, financial institutions and companies that manage investment funds. Therefore, it represents a great opportunity for all types of investors, which is reflected in the volume of investment, “2.9 trillion dollars and 1.1 trillion euros are traded every day“, explains Rambla.
Trading with the exchange rate between two currencies
The aim of investors is to profit from the price difference between the different currencies listed on the market. It should be borne in mind that the value of a currency can vary depending on many factors. The current economic situation with runaway inflation can play a role in determining demand, but other circumstances can drive a currency’s value up or down.
Investors buy and sell currencies based on their expectation that a currency pair will move up or down from its initial value. In this sense, Rambla points out that the Forex market “allows us to agree on prices and hedge risks, known as options and futures”.
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