FOREX is the acronym for the foreign exchange market, where one country's currency is exchanged for that of another through a floating-exchange-rate system. It is the world's largest financial market, with an estimated daily average turnover of upwards of $2.5 trillion.
FOREX Defined
Profiting from FOREX trading is not bound to any one trading floor and is not a market in the traditional sense because there is no central exchange. Instead, the entire market is run electronically, within a network of banks, continuously over a 24-hour period. The market opens Sunday at 5 P.m. (EST) and goes thru Friday afternoon at 4:30 P.m. (EST).
FOREX Defined
Banks have a natural flow of FOREX business from their customers, who buy and sell currency according to their individual needs. The banks must manage their own currency deposits in the changing light of their customers' transactions. To hedge or not to hedge? This is a way to basically minimize their potential for loss, often referred to as a hedge.
FOREX Defined
Investment managers also now deal globally, and they also must take positions in the different currencies, as well as in more traditional instruments, such as bonds and equities. Conversely, because currencies have become an asset class, managers also must decide if the creation of a FOREX exposure is desirable for speculative purposes.
Companies and institutions of all kinds that have foreign customers or suppliers must decide if they should hedge the FOREX exposure that this creates. Exporters have the risk of a rise in the value of their local currency, and importers have the risk of a fall in theirs. If there is a change
in currency value before the goods are exchanged, one of the parties could lose all their expected profits. This uncertainty in expected from FOREX profits can be eliminated by offsetting the risk in the currency exchange.
|
