Forex market refers to a financial market where different world currencies are traded. The mainaim of the forex market is that it wants to aid in the facilitation of international trade. Since thecountries taking part in trade use different countries, then, a right exchange rate has to bedetermined before any trading takes price.
Forex market trading
In this case, the volume and nature of trading is usually determined by the exchange rateregime in place. The most effective way of analyzing this market could be on looking of variables such as international trade between countries in a floating exchange rate regimewhere forces of demand and supply are left to predict the equilibrium exchange rate betweendifferent currencies, trading will be more open and competitive. However, in the managed floator the pegged exchange rates regimes, the prices of various currencies are fixed and thus notmuch activity is expected in terms of bargaining trying to come out with the best price.
Like in the common goods and financial markets, the forex market has both demanders (buyersand suppliers (sellers) of foreign currency in as much as government may control the exchangerates, majority of participants in the market are usually from the private sector. The demandersfor foreign exchange may include students travelling abroad for studies, individuals seekingmedical care from abroad, investors seeking to purchase machinery and other raw materialse.t.c. on the other hand suppliers of foreign currency may include international tourists andvisiting a country, exporters of commodities from a country locals living in the diaspora whowould love to remit some of their incomes e.t.c. for their part, though illegal, money laundersare considered to be very efficient demanders and suppliers of foreign currency.
Speculation in the forex markets.
Speculation is the process of taking two part offsetting positions in two markets such that thenet return is only the expected returns. In this case risks and minimized in that excess profits inone market are offset by equally large losses in the other markets. Speculation as an activity is avery important aspect of the foreign exchange markets and due to the numerous numbers of speculators, they can be able to influence or determine the exchange rates of differentcurrencies in the forex market. The speculation activities may also include hedge funds which inprinciple use the same principle in their day to day activities.