With over $5 trillion in transaction volume every day, the FX exchange market is one of the largest in the world. It operates 24 hours daily from on Sunday through to Friday 10pm GMT. Here are some important things you should know about the market before you start trading: Buying and selling currency In a layman’s language, foreign exchange is simply the act of converting one currency to another. This can be for business, tourism or for personal use. So if you have ever used any other currency other than your country’s currency, then you have been part of the FX market. For example, let’s say you are travelling to the US and need $1000 U.S dollars for your day to day expenses there. When you go to change your 1272 Canadian dollars, literally you are selling your Canadian dollars and in exchange buying U.S dollars. This is basically what banks and foreign exchange companies do when trading in the foreign exchange market. Similarly when you return from the United States with some left over U.S dollars, you will probably want to stop by a foreign exchange provider and change your U.S dollars into Canadian dollars. How Foreign Exchange Companies Make Money Foreign exchange firms mainly make money through PIPs. This is basically the difference between the rate at which you bought the U.S dollar and the rate at which you sold it for. Think about the dollars you bought like products. And just like other products, demand for currency will definitely mean a higher exchange rate and this where trading rates come in. Value of a currency and Exchange rates The demand and popularity of a product will always influence its price, and this includes currency. You can buy $1000 with 1272 Canadian dollars today, but pay 1280 Canadian dollars for the same amount of U.S dollars tomorrow if its demand goes up. Also, the value of a country’s currency will depend on other factors like the country’s business activities and economy. For example, if Canada has very low unemployment levels, Canadians are likely to have more expendable income to use on other products and services other than the basic ones, which will in turn enhance the gross domestic product also known as GDP and as result enhance the value of the Canadian Dollar. Another important factor that affects the value of a country’s currency is speculation. When financial experts predict that the value of a specific currency is likely to increase in the near future, people are likely to start buying more of it which will in turn enhance its demand on the market. For example the globe’s major currencies like the U.S dollar, the Canadian dollar, the euro, the Japanese yen, the Swiss franc, the Australian dollar, the British pound and the New Zealand dollar, are not only the most trusted and traded, but are also the most demanded on the foreign exchange market. How People Use Foreign Exchange Market People use the FX market in various ways. First, it allows individuals to transfer their purchasing power from one nation to another easily. People who travel frequently, those who send money home from another country often, parents making overseas tuition payments and people who own properties in another country, usually find the services of a reliable foreign exchange company very handy. Also, most of these providers make it easy for people to take advantage of friendly market environments by offering actual time exchange rates instead of the daily normal rates. Foreign exchanger services likeKnightsbridge FXalso tend to charge lower transaction fees than traditional exchangers like banks and have smaller hidden costs. Secondly, most foreign exchange providers often take various approaches when changing money. For instance there is the ‘spot trade’ approach and the forward contact approach. The spot trade approach allows customers to buy and sell currencies at the current price. The forward contract approach on the other hand, is designed for people who don’t want to sell or buy money immediately. For instance, consider a parent in Canada who needs to pay for tuition at Harvard University in 3 or so months. Instead of risking the currency market changing to unfriendly conditions, he or she can use the forward contact approach to lock in the prevailing exchange rate for a specific period. Bottom Line Whether it is a forward contract lock or spot trade, if you exchange money often, it is important to keep in mind that exchange rates can change at any time. Understanding how the FX market works and taking some preventive measures can go a long way in helping you avoid potential risks for a more favorable outcome. ...read more
By Johnnie Wilson December 26, 2017
There are multiple uses for electronic payments that make your life more comfortable. Some electronic payments are set up so that you do not have to receive a bill to pay it. Electronic payments have made shopping every woman’s dream. Furthermore, large companies no longer have to spend endless ... ...read more
The process of a wire transfer of money involves the transfer of funds from one bank account to another. The transfer is completed by the bank and the sender or the recipient of the funds is not able to see or touches the actual funds. ...read more