How does the Forex market trade daily
There is no doubt that the forex exchange marketplace is the biggest financial market globally. It is estimated that more than 1 trillion dollars are traded in the forex market daily. Unlike what you may have heard, trading in foreign currencies is not carried out from one central area. However, the trade is carried out amongst participants via electronic communications networks –ECNs and phone links in numerous markets worldwide.
The forex market is normally open from Monday to Friday from 5 pm EST, Sunday to 4 pm EST, to Friday. The main reason why the forex market is usually open to trading 24 hours a day is because foreign currencies are in high demand. Due to globalization, thousands of business men are traversing the globe searching for business opportunities. As such, traders worldwide are working around the clock to ensure the demand for a certain foreign currency is met.
International trade has also necessitated the need for foreign currencies. In addition, currencies are required by central banks and global businesses. Since the early 70s, Central Banks around the globe have depended on foreign exchange. This was when fixed currencies stopped existing since the gold standard had also dropped. Since that time, majorities of global currencies have been made available for trade instead of pegging on the value of gold.
With every passing minute, economies worldwide are either expanding or shrinking due to economic and political instability. Central banks have always strived to stabilize their nation’s currency by making it available for trade in the open market and maintaining a comparative value compared to other global currencies.
Establishments that operate in most countries strive to lessen the perils of conducting business in foreign markets and the hedge-currency risk.
To achieve this feat, they opt to enter into currency changes, providing them the right, however, not automatically the responsibility to purchase a given amount of foreign currency for a certain amount of money in a different currency at a certain date in the foreseeable future. They are restricting their exposure to huge variations in currency valuations. Given the significance of currencies in the global arena, there is a need for 24-hour trading every day.
The capacity of foreign currencies to trade daily is due to varying time zones and the fact that it is made up of a network of PCs.
