Different Types of Contracts for Infrastructure Projects
Private-public partnerships are a common mechanism used while creating infrastructure projects. In general, a public-private partnership involves a joint venture between a government body and a private corporation. However, there are several different ways in which it is possible for these two types of companies to collaborate. In some types of contracts, the government bodies […]
The Importance of Personal Finance
There is no shortage of education in the field of finance. There are various academicians who work tirelessly in the field of finance. Many theories have been developed, and many conjectures have been disproved. Every year thousands of people graduate with finance as their major. However, most of these people are trained in the field […]
What is Annuity? – Meaning and Concept
An annuity, just like a perpetuity, is a shortcut used while making present value calculations. Unlike the perpetuity, which is very difficult to find in real life, we find examples of annuity all around us. The monthly mortgage payments we make, the car loan or student loan that we pay off are all annuities. Annuities […]
Common Issues with Revenue Generated from Broadcasting Right
In the previous article, we have already seen that broadcasting rights and the revenue from the sale of these broadcasting rights have become a very important part of the overall revenue generated by sports leagues all over the world. It would not be far-fetched to say that the economic fundamentals of sports leagues would be […]
Risks Faced By Infrastructure Projects in Emerging Markets
Infrastructure projects are most needed in developing nations. These are the countries where infrastructure projects are able to create the most growth. This is because the spillover effects of infrastructure projects are felt significantly in emerging markets. Ideally, emerging markets should create policies that attract more and more foreign investment on to their shores. However, […]
The term “Forex market” is used very frequently in the media as well as in day to day life. It conjures up an image of a huge historic building somewhere in Canary Wharf or on Wall Street. However, that is not how the Forex market works. This market is unique in many respects and to understand it, one first needs to understand its unique characteristics. The unique characteristics of the Forex market are as follows:
The stock markets and bond markets of the world have a physical existence. If you wanted to visit the New York Stock Exchange or the London Stock Exchange, there would be a historic building that you would end up visiting. However, this is not the case with Forex Markets. Forex Markets do not have any physical existence. This means that there is no building anywhere in the world where Forex dealers are located and have designated the place to be the Forex Market.
Instead, the Forex market is made up of money changers all over the world. The market is interconnected via means of information. Earlier, the information was transmitted manually, now the information is transmitted via electronic means. Therefore, the currency dealer in your neighborhood as well as in a far off place like Mexico City together all constitute the Forex Market. The Forex market therefore constitutes an interconnected network of buyers and sellers.
The Forex market is by far the largest market in the world. The daily transaction volume in the Forex market is over $4 trillion. This massive amount of money does not change hands even if we consider the imports and exports of the entire world for an entire year!
The trading volume in the Forex markets dwarfs the trading volume in all the stock markets of the world by a huge extent. Also, the trading volume is greater than some of the oldest and most advanced bond markets in the world. The Forex market is also the oldest financial market in the world which helps in making it the largest!
The Forex market is the only 24 by 7 market in the world. This means that the market is operational all the time. This can be contrasted with stock and bond markets which operate for only a few hours every weekday. In case you want to buy or sell Forex there is always someone somewhere on the planet that is willing to sell it. If you are trying to sell in the middle of the night in the United States, maybe a buyer in China is willing to buy! If you are trying to sell your currency on a Sunday, buyers in the Middle East are transacting because they work on Sundays and have their week offs on Friday! Therefore the convenience and flexibility provided by the Forex markets is unparalleled.
The fact that the Forex markets are open 24 by 7 and have the largest trading volume in the entire world makes it the most liquid financial market. Anyone who wishes to buy or sell their currency holdings can do so in a matter of seconds with a mouse click and with minimum loss of value. Forex prices are readily quoted on a real time basis by various individuals and organizations in the world. Also, since there are so many intermediaries around the world that deal in these currency markets, the transaction costs for such trades is very low. These trades are carried out on a global scale and are not restricted by any geography. As such, there is minimal taxation on these trades!
Forex markets provide a benchmark for transparency that can be followed by other financial markets. The trades that happen in these markets are diffused all over the world and are conducted during different time zones. Yet, the information systems are so well developed that all the information is available instantly at the click of a button, any time of the day! The data is collated and presented to the investor to enable them to make informed decisions. Also, since so many individuals and organizations operate in the Forex market, foul play is nearly impossible. There are government organizations like Central Banks of various nations which operate in this market and hence one can be sure that this market works efficiently.
The Forex market provides a wide variety of options when it comes to trading. There are long and short sides of any contract always available. Then there are contracts of various sizes and in various currencies. Also, the Forex market provides the investor with a choice regarding varying degrees of leverage. The amount of leverage provided by the Forex market is simply astounding. However, it is advisable that the traders exercise caution while using it.
The Forex market therefore has a lot of unique characteristics. These characteristics are important to get a first impression of this huge market. As we progress later in this module, we will realize that each of these characteristics has far reaching implications on the way trades actually happen and whether they are profitable or not!
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