Business

The functionality of the FOREX market

The forex enables international trading and investment, it is due to the existence of a determining body such as the FOREX market that country ‘’A’’ is able to conclude at which rate its currency should pay country ‘’B’’.

In simple terms, the market’s rate indicates the sway which a said currency carries and the one that yields the most power is often the currency that calls the shots. These currencies are called base money and most often its exchange rate remains constant.

Base currencies are the first indicated in a CCY pair. The EURO is the most dominant of them all. As a result all CCY pairs that it is included will go as EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CADetc. The British pound is the next most powerful, and its currency pairs read as GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD, except for when its exchange rate is indicated against the Euro. Thenit reads as EUR/GBP. The next highest base CCY is the USD, but it is the one mostly in circulation as most countries outside the European Union and the Great Britain transact more in USD.

The key players in the FOREX market are the large international banks and financial centers who hold the largest market share today but over the years and in the most recent past, hedge funds, commodity trading advisors and individual retail trader have created quite a stir in the market. Today even international companies who are open to FX risks because of their businesses located in countries take part in the FOREX platform.

There is of course the regulating body for all institutions and individuals that are a part of this, in many jurisdictions it is the central bank. For an Australian forex broker it would be the Australian Securities and Investment Commission (ASIC). In china it is the China Securities Regulatory Commission (CSRC) and for India it is the Securities and Exchange Board of India (SEBI) and the Reserve bank of India (RBI).

Each country’s regulatory body sets the guidelines for all parties within the country that take part in the FOREX market and not adhering to same would result in fines and revocation of their license. The objective of the regulators is to supervise and control the Forex industry and act as the representative to all its stake holders.

FOREIGN CURRENCY SYMBOLS

In the FOREX market each currency is referred to by a specific acronym that is derived from its full form. This streamlines the functions of the entire process the acronym is generally three lettered and its first two letters indicate the country and the third is the first latter of the currency it operates in.

Eg:

USD = United States Dollar

GBP = Great Britain Pound

JPY = Japanese Yen

 

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