FOREX

The foreign exchange market trades the currencies. It lets banks and other institutions easily buy and sell currencies. The purpose of the foreign exchange market is to help international trade and investments. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euro, even though the business's income is in U.S. dollars.


Different banks maintain stocks of foreign currencies in the form of balances with banks abroad. For instance, An Asian bank may maintain an account with bank of America, New York, in which dollar balances are held.


The foreign exchange market is an over the counter market. This means that there is no single physical or electronic market place or an organized exchange (like a stock exchange) with a central trade clearing mechanism where traders meet and exchange currencies. The market itself is actually a worldwide network of inter bank traders, consisting primarily of banks, connected by telephone lines and computers.


While a large part of inter bank trading takes place with electronic trading system such as Reuters Dealing 2000 and Electronic broking systems, banks and large commercial (i.e. Corporate) customers still use the telephone to negotiate prices and consummate the deal. After the transaction the resulting market bid/ask price is then fed into the computer terminals provided by official market reporting service companies. 24 hours market the markets are situated through out the different time zones of the globe in such a way that when one market is closing the other is beginning is operations.