What is Foreign Exchange Market?

The foreign exchange market is different from traditional stock or futures markets in that it does not have a fixed centralized trading venue, but is organized in the form of an over-the-counter trading market, consisting of institutional markets and retail markets.

Foreign exchange market: refers to the market that operates the trading of foreign currency and foreign currency denominated Securities, and is the main component of the financial market. Previously, the general understanding of the foreign exchange market was only a concept of foreign currency. However, after several periods of evolution, it has become more widely understood by the general public and has been applied as a financial tool for foreign exchange transactions. The foreign exchange market is an abbreviation for international exchange. The concept of foreign exchange market can be divided into static and dynamic. Dynamic foreign exchange refers to the financial activity of converting one country's currency into another country's currency to settle international debts. In this sense, dynamic foreign exchange is equivalent to international settlement. Static foreign exchange can be divided into broad and narrow senses.

Broadly speaking, foreign exchange is referred to as foreign exchange under foreign exchange management laws and regulations. It generally refers to all external financial assets. According to Article 3 of the current Regulations of the People's Republic of China on Foreign Exchange Management, foreign exchange refers to payment methods and assets expressed in foreign currency that can be used for international settlement. Narrowly speaking, foreign exchange refers to the means of payment expressed in foreign currency for international settlement.

Regardless of whether you understand the foreign exchange market or not, everyone is already a part of it. In short, the money in your pocket has made you an investor in currency. If you reside in the United States, various loans, stocks, bonds, and other investmentsCapital is measured in US dollars, in other words, unless you are one of the few investors who owns a foreign currency account or has purchased multiple currencies or stocks, you are an investor in US dollars.

In terms of holding US dollars, you have basically chosen not to hold currencies from other countries because the stocks, bonds, and other investments you buy or the deposits in your bank account are all denominated in US dollars. Due to the appreciation or depreciation of the US dollar, it may affect the value of your assets, thereby affecting the overall financial condition. So, many astute investors have made good use of the ever-changing nature of foreign exchange rates to engage in foreign exchange trading and profit from it.

The foreign exchange market has undergone several changes since its inception. Previously, the United States and its allies were known as Bretton WoodAgreement is the principle that a country's currency exchange rate is pegged to its gold reserves. However, in the summer of 1971, after President Nixon suspended the exchange of the US dollar with gold, a floating exchange rate system emerged. The exchange rate of a country's currency now depends on its supply and demand, as well as its relative value. The reduction of obstacles and the increase of opportunities, such as the collapse of communism and the dramatic economic growth in Asia and Latin America, have brought new opportunities for foreign exchange investors.

The frequent trade exchanges and the increase in international investment have formed an inseparable relationship between the economies of various countries. Regular global economic reports such as inflation rates, unemployment rates, and unexpected news such as natural disasters or political instability are all factors that affect the value of the currency. Currency fluctuations also affect the supply and demand of this currency internationally. The volatility of the US dollar continues to compete with other currencies in the world. The result of international trade and exchange rate fluctuations has created the world's largest trading market - the foreign exchange market, a first-class world-class market with efficiency, fairness, and liquidity.

The foreign exchange trading market is a cash interbank market or dealer to dealer market, which is not the traditional physical market. There are no physical venues for trading, and transactions are conducted around the world through telephone and computer terminals. The direct interbank market is mainly composed of traders with foreign exchange clearing trading qualifications, whose transactions constitute the bulk of the overall foreign exchange trading, These transactions have created a huge trading volume in the foreign exchange market and made it the most liquid market.

The international foreign exchange market is the youngest market in the current international market. Established in 1971 during the period when the gold exchange standard was abolished.

The foreign exchange market is the world's largest financial market, with a daily trading volume of up to $150 trillion. In the traditional impression, it is believed that foreign exchange trading is only suitable for banks, consortia, and financial managers. However, over the years, the foreign exchange market has continued to grow and has connected global foreign exchange traders, including banks, central banks, brokers, and corporate organizations such as importers and exporters, as well as individual investors. Many institutional organizations, including the Federal Bank of the United States, earn rich profits through foreign exchange. Nowadays, the foreign exchange market not only provides profit opportunities for banks and consortia, but also brings profit opportunities for individual investors.

What are the functions of foreign exchange?

1、 Promote the development of international economy and trade.

Using foreign exchange to settle international debts and debts can not only save on the cost of transporting cash, reduce risks, shorten payment time, accelerate capital turnover, but more importantly, using this credit tool can expand international credit exchanges, broaden financing channels, and promote the development of international economy and trade.

2、 International funding surplus and shortage. The imbalanced development of the world economy has led to an imbalanced allocation of funds.

Some countries have a relative surplus of funds, while others have a severe shortage of funds. Objectively, there is a need to adjust the surplus and shortage of funds. Foreign exchange serves as an international means of payment, and through international credit and investment channels, it can adjust the surplus and shortage of funds to promote the balanced development of economies in various countries.

3、 Foreign exchange is an important component of a country's international reserves and the main means of payment for repaying international debts. Like the national gold reserve, as a national reserve asset, it can be used to pay off debts once the balance of payments deficit occurs.

【 EBC Platform Risk Reminder and Disclaimer 】: There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice.