If there is a financial asset of special relevance in the economy, it is the foreign exchange market. You have ever heard about it and it may even have served you to make your economic operations profitable. For many years it has become a point of reference for determine business relationships, not only of all the countries of the planet, but also among the people. For this reason it is very important that you have a full knowledge of what it means in economic relations.
If we are talking about the currency market, we are necessarily referring to the Forex . It is an abbreviation of the English term Foreign Exchange and happens to be one of the markets most active in the world and characterized by being strongly decentralized. Well, all kinds of foreign currencies or international currencies are traded in it. Not only the best known, such as the euro, US dollar, Swiss franc or British pound, among some of the most relevant. But others from any international economic area.
Through this very special financial market, currencies they trade at all hours and they undergo all series of changes in their valuations. These movements are used by investors to try to make their available capital profitable. Not surprisingly, it is one of the most active markets in the world because it can be invested in almost any currency in the world. Where the high volatility of their prices is one of their main common denominators. To the point that you can open and close positions in a single session in the equity markets. With a wide difference between the benefits and disabilities that you can get from now on.
Currency: monetary flows
Of course, its appearance is due to a very specific reason and that has a lot to do with what economic relations are. In this sense, you cannot forget that this market was born with a very clear objective and that it is none other than to facilitate the flow derived from international trade. Everything is bought and sold by means of a currency, whatever it was. To the extent that it is what gives value to the operations that are carried out all over the planet. With a very direct link on what is the price of money. Not surprisingly, monetary policies are based on the results offered by the currency markets.
On the other hand, you cannot forget that foreign exchange is the instrument to design the economic policy of a country. Beyond other vital economic valuations. Where a good part of international operations are carried out in very specific currencies. As for example, in the specific case of euro and dollar from the United States. For this reason, the changes that occur in the markets where they are listed are so important. To the point that they can unleash a major financial storm, as has happened in recent decades. Or even cause particularly relevant economic recessions.
Foreign currency trading
Such is the importance of this important financial asset that it is absolutely essential to carry out any commercial activity. To the point that according to the Bank for International Settlements, Preliminary global results from the 2016 Triennial Banking Market Foreign Exchange and Derivatives Survey show that trading in the foreign exchange markets averaged around US $ XNUMX trillion in this time period. This is a figure that highlights the relevance that currencies generate in capital flows around the world.
For this process to develop correctly, currencies must be regulated to establish their value. And in this sense, it is the financial markets that exercise intermediaries depending on the law of supply and demand at each specific moment. With constant variations in the quotation of their prices and of them, small and medium investors can take advantage of each of their operations in these very special markets.
What are these markets like?
The financial markets where these assets are listed are very similar to other investments. As for example, buying and selling shares in a bag. But with a small nuance that you must take into account from now on. It is none other than its variation is continuous which can help you to carry out your trading operations. You can earn a lot of money in these characteristic movements, but for the same reason, leave a lot of euros on the way. At no time should you forget the risk involved in your operations. Above other more conventional investment classes.
From this general scenario, it is very important that you know that it is of great importance to adjust the purchase and sale prices of currencies. Among other reasons because it is about very tight operations. Another of the most relevant characteristics of this financial market is the presence of its high volatility, which is an impediment to operating with greater tranquility in these investment proposals. On the other hand, it is an investment that is recommended for very short periods of time. Even in hours you can fulfill your investment needs in this very particular financial asset.
More than barter operations
Currencies, on the other hand, go beyond what is detected in investment markets. Because in effect, if they are characterized by something, it is because if there really were no foreign exchange market, international transactions would be like a simple barter of products and there would be independence from the domestic prices of a country with respect to internationals. This of course adds greater importance to the effects on which their actions are derived. Although it is true that only a few are those that concentrate most of the operations carried out in countries around the world.
In this regard, the most important role corresponds to the United States currency. Until recently it monopolized the majority of commercial and mercantile transactions. Until the common european currency, the euro, and these functions have been distributed almost with relative equality. This is one of the main reasons why currency markets are protagonists in a large part of the operations carried out by small and medium investors. Not in vain, a good part of the financial agents are pending at each of the moments of their respective changes in the price.
Forex market functions
Another aspect to be clarified at this time is the role in this kind of financial markets. Well, its functions are very well defined and it is necessary that you assimilate this concept from now on. Because indeed, He Forex market it fulfills two main functions in its mission. One of them resides in converting the currency of one country into the currency of another. This concept is easily understood in any monetarist strategy. But on the other hand, the second of its functions is based on offering a little security against the exchange risk that this kind of very special operations entails. In a way it generates a kind of movement protection that are developed in financial markets of these characteristics.
Because as you well know, the risk of these movements are higher than in other financial assets with which you are used to operating every day. And that you demand some security measures higher in order to preserve above all your positions. To the point that not all investors are in a position to operate with these investment instruments. If you do not have sufficient financial culture to operate, it will be better to abstain and direct your personal assets to another class of financial assets less complex in terms of their structure and mechanics in the financial markets.
Arrival of cryptocurrencies
One of the most relevant events in recent months has been the landing of virtual currencies. But be very careful with their operations because at the end of the day it is not the same even if they are denominated as coins. It is something completely different that has nothing to do with the subject we are dealing with. But on the contrary, it goes more into what is a clearly alternative and especially risky investment. For the effects derived from its operations, as you can see during these days.
These virtual currencies can be revalued as soon as close to 100% than the next day they will be left in the markets with a similar percentage or even greater intensity. With the obvious risk of leaving you in the markets a very important part of the invested savings. From this scenario, virtual currencies cannot be compared, for example, with the Swiss franc, British pound or the same Japanese yen. It is a completely different financial asset. This is something that you should take into account now to correct any strange movement in your checking account. Something that some small and medium investors around the world are accusing.