Characteristics of Foreign Exchange Markets



In recent years, the foreign exchange market favors more and more people as it becomes a favorite for international investors, and this is strongly related to the properties of the forex market. The main characteristics of the foreign exchange market are summarized below.

It is a market without a trading field
The finance industry generally consists of two sets of systems, namely the operation market and the business network. Stock trading is carried out through stock exchanges, like the New York Stock Exchange and the Tokyo Stock Exchange, that are centralised business financial commodities - they consist of unified procedures and intermediaries such that the quoted price and transaction time are the same across various brokers. The investor can buy and sell their holdings through any broker, therefore the stock exchange is said to "consist of a trading market and trading field".

On the other hand, foreign exchange transactions take place without any unification of the operation market and business network. The forex market has no centralised market like a stock exchange. The foreign currency trading network has formed into a global, non-formal organization that consists of an advanced information system. Forex traders are not required to hold a membership of any organization, but must obtain their colleague´┐Żs trust and approval. The forex market therefore is said to "consist of a market but no trading field". Each day, the trading volume in the global forex market runs into several billions of U.S. dollars.

Circulation work
Due to the different geographical position of the various financial centres, the forex market operates 24 hours each working day.

Early morning 0830 (New York time) New York market opens, 0930 Chicago market opens, 1830 Sydney opens, 1930 Tokyo opens, 2030 Hong Kong and Singapore open, before dawn 1430 Frankfurt opens, and at 1530 London market opens. The forex market therefore undergoes 24 hours of uninterrupted operation, from Monday to Friday each week.

This kind of continued operation, free from any time and spatial barrier is an ideal environment for investors. For instance, a forex trader may buy the Japanese Yen in the morning at the New York market, and in the evening if the Japanese Yen rises in the Hong Kong market, the trader can sell in the Hong Kong market. The freedom to operate in multiple markets provides an enormous number of opportunities.

Shift of Wealth
In the foreign exchange market, the exchange rate refers to the exchange ratio between the currencies of two countries. Fluctuations in the exchange rate change will cause one currency to lose its monetary value, and at the same time increase the monetary value of another currency. For instance, over 20 years ago a single US dollar bought 360 Japanese Yen, whereas at present 1 US dollar buys 110 Japanese Yen; this explains that the Japanese Yen has risen in value, and the US dollar has decreased in value (relative to the Yen). This is said to be a shift in wealth, as a fixed amount of Japanese Yen can now purchase many more goods than two decades ago.

In recent years, the size of the foreign exchange market fund has constantly increased, causing more exchange rate fluctuation every day, and urging this wealth shift to be larger.