What is the foreign exchange market

The foreign exchange market refers to a trading market in which banks and other financial institutions, proprietary dealers, and large multinational corporations participate, and are connected through intermediaries or telecommunication systems, with various currencies as the trading objects. It can be tangible-such as foreign exchange exchanges, or intangible-such as inter-bank foreign exchange trading through telecommunication systems. According to the latest statistics of the Bank for International Settlements, the average daily trading volume in the international foreign exchange market is approximately US$6 trillion, and the highest daily trading volume in 2019 exceeded US$11 trillion.

Who are the prominent participants in the foreign exchange market?

Participants in the foreign exchange market mainly include central banks, commercial banks, non-bank financial institutions, broker companies, self-employed businesses, and large multinational corporations in various countries. They have frequent transactions and substantial transaction amounts, each in the millions of dollars or even more than tens of millions of dollars. Participants in foreign exchange speculation can be divided into investors and speculators according to their trading purposes.

How did the foreign exchange market come into being?

In the current world economy, no country can leave the international economic and trade exchanges. With the global flow of commodities, labor services, and capital, various currency movements that cross national borders for payment are inevitable. International economic sales form the supply and demand of foreign exchange. The collection and demand of foreign exchange lead to foreign exchange speculation. The place where foreign exchange speculation is conducted is called the foreign exchange market. With the continuous strengthening of the globalization trend of the world economy, the international foreign exchange market has become increasingly closely linked. (Focus: Which stocks will perform beyond imagination)

What are the major global foreign exchange markets?

At present, there are about 30 major foreign exchange markets in the world, located in different countries and regions on all continents of the world. The traditional geographical division can be divided into three parts: the Asia-Pacific region, Europe, and North America. The most important ones are London, Frankfurt, Zurich, and Paris in Europe, New York and Los Angeles in North America, and Sydney and Tokyo in the Asia-Pacific region. Singapore and Hong Kong etc.

Each market has its own fixed and unique characteristics, but all markets have commonalities. Each market is separated by distance and time, and they are sensitive to each other and independent of each other. After one center is open every day, it passes orders to another center, sometimes setting the tone for the opening of the next market. These foreign exchange markets are centered on the city where they are located and radiate other surrounding countries and regions. Due to the different time zones, the various foreign exchange markets open one after the other during business hours and are listed for business one after another. They are connected through advanced communication equipment and computer networks. Market participants can trade all over the world. The flow of foreign exchange funds is smooth. The exchange rate difference between markets is minimal, forming a unified international foreign exchange market that operates globally and operates around the clock.

Which is the largest foreign exchange market in Asia?

Tokyo is the largest foreign exchange center in Asia. Before the 1960s, Japan implemented strict financial controls. In 1964, when Japan joined the International Monetary Fund, the yen was allowed to be freely convertible, and the Tokyo foreign exchange market began to take shape. After the 1980s, with the rapid development of the Japanese economy and the gradual rise in international trade, the Tokyo foreign exchange market has also grown stronger day by day.

Since the 1990s, trading in the Tokyo foreign exchange market has been in a downturn due to the collapse of the Japanese bubble economy. Trading in the Tokyo foreign exchange market is dominated by USD/JPY. Japan is a significant trading country, and the trade demands of importers and exporters have a more substantial impact on the fluctuation of exchange rates in the Tokyo foreign exchange market. Since changes in the exchange rate are closely related to Japan's trade conditions, the Central Bank of Japan is highly concerned about the fluctuations in the exchange rate between the U.S. dollar and the yen and frequently intervenes in the foreign exchange market. This is an essential feature of the Tokyo foreign exchange market.

Where is the world's largest foreign exchange center?

In London. As the world's oldest international financial center, the formation and development of the London foreign exchange market are also the earliest in the world. As early as before the First World War, the London foreign exchange market had begun to take shape. In October 1979, Britain completely abolished foreign exchange controls, and the London foreign exchange market developed rapidly. About 600 banks have gathered in the City of London. Almost all central international banks have branches here, intensely activating transactions in the London market. Due to London's unique geographical location, located at the intersection of two major time zones, connecting the Asian and North American markets, London opens when Asia is close to the close. When the market closes, New York is the beginning of a working day, so this time Investing in abnormal activities, London has become the world's largest foreign exchange center, which has an important impact on the entire foreign exchange market.

Where is the most active foreign exchange market in North America?

in New York. After World War II, as the U.S. dollar became the world's reserve and clearing currency, New York became the world's U.S. dollar clearing center. The foreign exchange market has rapidly developed into a completely open market and is the world's second-largest foreign exchange center. At present, more than 90% of the U.S. dollar receipts and payments globally are carried out through New York's "interbank clearing system." Therefore, the New York foreign exchange market has the function of U.S. dollar clearing and transfer that other foreign exchange markets cannot replace, and its position is increasingly consolidated. At the same time, the importance of the New York foreign exchange market is also reflected in its important influence on exchange rate trends. The fierce exchange rate change procedure in the New York market is worse than that in the London market. The reasons are mainly due to the following three aspects: the economic situation of the United States has a significant impact on the world; various financial markets in the United States are developed, and the stock market and bond market, Foreign exchange markets interact and interconnect; speculative forces dominated by U.S. investment funds are very active, contributing to exchange rate fluctuations. Therefore, the exchange rate changes in the New York market have attracted particular attention from the global foreign exchange f.V. Finance Network.

Why is the bank buying price lower than the selling price?

The bank buying price refers to the quote at which the bank buys the base currency. The bank selling price refers to the section at which the bank sells the base currency. The difference between the buying price and the selling price represents the bank's reward for taking risks. Frequent transactions such as the Euro, Japanese Yen, British Pound, Swiss Franc, etc., have relatively small bid-ask spreads, while the spaces of some lightly traded currencies are rather large.

There are several ways to express the exchange rate in the international foreign exchange market.

There are generally two types, direct pricing method, and indirect pricing method.

What is the direct price?

The direct pricing method is also called the price pricing method. It is a method of expressing the exchange rate of a particular unit of foreign currency in the domestic currency. Generally, it is how much domestic money can be converted into 1 unit or 100 units of foreign currency. The more valuable the domestic currency is, the less domestic currency can be exchanged for a team of foreign currency, and the smaller the exchange rate value. Conversely, the less valuable the household money is, the domestic currency can be exchanged for a unit of foreign currency, and the greater the exchange rate value. Under the direct pricing method, the rise and fall of the foreign exchange rate and the change in the value of the domestic currency are negatively correlated: the domestic currency appreciates, and the exchange rate declines: the domestic currency depreciates and the exchange rate rises. Most countries have adopted the direct pricing method. Most exchange rates in the market are also exchange rates under the direct pricing method, such as U.S. dollar to Japanese yen, U.S. dollar to Hong Kong dollar, U.S. dollar to RMB, etc.