Currency Market: A Growing Source Of Finance

The other name for the currency market is foreign exchange market or Forex. It is more commonly used than the term currency market. As the name suggests this sector offers to trade in various currencies. The currency market can be dated in history to the 1970s when the currency exchange between countries were floating. Since then it has been expansive and inclusive of as many currencies as possible. In fact, this market is bigger than the stock market and is estimated to be at 5.1 trillion (USD) in 2016.

Anyone can trade in the currency market, it can be an individual or a giant financial corporation. The national currencies are pitted against one another in the currency market. The most valued currencies include USD, Euro, Japanese Yen, Pound Sterling, Swiss Franc and the Australian Dollar. They are often considered to make up the backbone of the Forex market as they offer the most stable exchange rates.

How a trade is done in currency market?

A price is paid in one currency for another currency. This exchange is what makes up the currency market. The trading can be done through spot transactions, swaps, forward and option of contract. So the currency market in India is where an exchange of various currencies that takes place. You can take advantage of the currency market live if you trade in India between 9.a.m to 5.p.m.

Key features of the currency market

Some of the key components that make the currency market are the following:

It is a global marketplace for the trade of national currencies.

Investors leverage on currency market and speculate based on geopolitical events which helps them better comprehend international currency trend and also analyse interest rates. Even portfolio diversification is greatly affected by currency market.

The deals are done between mainly hedge funds, financial institutions.

Individuals when indulging in the currency market prefer to day trade as it is the most profitable and easily understandable solution.

What is currency derivatives?

It is a contract that the involved parties agree upon. The value comes from the underlying asset and the price or rate is predetermined among the buyer and the seller. It is a great opportunity to leverage currency movement.

Roles different players have in the currency market

There are many players in the currency market, the key players are the following.

Banks and investment institutes – They are the most frequent traders in the currency market. The inter-bank transaction speculates the rates and the bank’s profit is what you see in the bid-ask spread.

Central banks – They are key players as they are the ones who would decide the rate of the national currency in the global currency market.

Fund managers – They deal with speculative currency trade rates and may invest for bigger portfolios and trade in international securities as well.

MNC – They take part as they constantly pay and get paid for goods and services all across the globe.

Individual investor – They are the new kids on the block and the trend of individuals wanting to trade in the currency market is gaining popularity.

Currency market contribution to the business

The currency trade between different countries is in a liquid state that not only affects inflation but also earnings in the corporate sector and the balance of payment between countries. Thus, it ends up shaping the global economy. Hedge funds and brokers try to sell low yielding currencies for high yielding ones and set off a motion that affects how the world does business. The market players easily influence and manipulate the exchange rates across the global marketplace.

Liberalisation gave impetus to currency market

Recent liberalisation in the Indian market has opened up the trading door in currency market for the individual investors as well. Not only that both corporations and financial institutes have greater scope within the regulated system, so there is a smooth transaction in the currency market.

If you want to invest in the currency market, now is the time. Take advantage of the global geo-political arena and invest for a secure future. But to begin trading, you will need a trading account with a broker and no demat account is required. You can instantly open your trading account online with a reputable stock broker like IndiaNivesh and start taking part in the global currency market.

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Created on Jan 16th 2020 23:44. Viewed 259 times.

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