Financial Modeling: Important Metrics
Financial modeling can be considered to be the science of making informed decisions regarding a company based on data simulations. Most financial models pay keen attention to a variable such as revenue and expenses as well as their drivers. Data regarding these variables is extensively collated as well as analyzed. However, it turns out that […]
Keep It Simple Securities (KISS)
In the previous article, we have studied about the concept of Simple Agreement for Future Equities (SAFE). However, it is important to note that SAFE is not the only innovative type of financial instrument which has been created for funding startup companies. Another type of financial instrument called Keep It Simple Securities (KISS) has also […]
Procedure of Job Order Costing
Before the Job The first four stages are done before the job is being performed. The final purpose of this is to give a quotation to the clients. The calculation is done based on very little information. However, it needs to be precise. Here is the procedure: Stage 1: List the Cost Objects At the […]
Why Retail Stores Offer Branded Credit Cards?
The retail industry has become closely intertwined with the finance industry over the years. This is the reason that the availability of better financing options often causes the sales of one store to increase in comparison to other stores. Over the years, retail stores have come up with many financial innovations which has helped them […]
Risks Associated with Sponsorship from Sponsored Entity’s Perspective
In the previous article, we have already seen that sponsorship is not really a risk-free activity. We became aware of the various types of risks which are faced by sponsors when they provide monetary assistance to sporting leagues. However, it is important to realize that the risks are not one-sided. Just like, sponsors are exposed […]
The term “Forex market” is used very frequently in the media as well as in day to day life. It conjures up an image of a huge historic building somewhere in Canary Wharf or on Wall Street. However, that is not how the Forex market works. This market is unique in many respects and to understand it, one first needs to understand its unique characteristics. The unique characteristics of the Forex market are as follows:
The stock markets and bond markets of the world have a physical existence. If you wanted to visit the New York Stock Exchange or the London Stock Exchange, there would be a historic building that you would end up visiting. However, this is not the case with Forex Markets. Forex Markets do not have any physical existence. This means that there is no building anywhere in the world where Forex dealers are located and have designated the place to be the Forex Market.
Instead, the Forex market is made up of money changers all over the world. The market is interconnected via means of information. Earlier, the information was transmitted manually, now the information is transmitted via electronic means. Therefore, the currency dealer in your neighborhood as well as in a far off place like Mexico City together all constitute the Forex Market. The Forex market therefore constitutes an interconnected network of buyers and sellers.
The Forex market is by far the largest market in the world. The daily transaction volume in the Forex market is over $4 trillion. This massive amount of money does not change hands even if we consider the imports and exports of the entire world for an entire year!
The trading volume in the Forex markets dwarfs the trading volume in all the stock markets of the world by a huge extent. Also, the trading volume is greater than some of the oldest and most advanced bond markets in the world. The Forex market is also the oldest financial market in the world which helps in making it the largest!
The Forex market is the only 24 by 7 market in the world. This means that the market is operational all the time. This can be contrasted with stock and bond markets which operate for only a few hours every weekday. In case you want to buy or sell Forex there is always someone somewhere on the planet that is willing to sell it. If you are trying to sell in the middle of the night in the United States, maybe a buyer in China is willing to buy! If you are trying to sell your currency on a Sunday, buyers in the Middle East are transacting because they work on Sundays and have their week offs on Friday! Therefore the convenience and flexibility provided by the Forex markets is unparalleled.
The fact that the Forex markets are open 24 by 7 and have the largest trading volume in the entire world makes it the most liquid financial market. Anyone who wishes to buy or sell their currency holdings can do so in a matter of seconds with a mouse click and with minimum loss of value. Forex prices are readily quoted on a real time basis by various individuals and organizations in the world. Also, since there are so many intermediaries around the world that deal in these currency markets, the transaction costs for such trades is very low. These trades are carried out on a global scale and are not restricted by any geography. As such, there is minimal taxation on these trades!
Forex markets provide a benchmark for transparency that can be followed by other financial markets. The trades that happen in these markets are diffused all over the world and are conducted during different time zones. Yet, the information systems are so well developed that all the information is available instantly at the click of a button, any time of the day! The data is collated and presented to the investor to enable them to make informed decisions. Also, since so many individuals and organizations operate in the Forex market, foul play is nearly impossible. There are government organizations like Central Banks of various nations which operate in this market and hence one can be sure that this market works efficiently.
The Forex market provides a wide variety of options when it comes to trading. There are long and short sides of any contract always available. Then there are contracts of various sizes and in various currencies. Also, the Forex market provides the investor with a choice regarding varying degrees of leverage. The amount of leverage provided by the Forex market is simply astounding. However, it is advisable that the traders exercise caution while using it.
The Forex market therefore has a lot of unique characteristics. These characteristics are important to get a first impression of this huge market. As we progress later in this module, we will realize that each of these characteristics has far reaching implications on the way trades actually happen and whether they are profitable or not!
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