What is Forex ~ Understanding Forex, Functions, and Actors In Forex Market
What is forex? For most of us may not know much about the meaning of the word. Forex in general can be interpreted as a form of currency trading is one country against another country’s currency. What is interesting is the current forex has become a very promising business field. For those of you who want to know more about forex, this article will provide an overview of the definition, function, as well as the perpetrators of the forex world that hopefully can be an additional useful information for you.
Understanding Forex
Forex is basically a combination of two words in the English language is “foreign” and “exchange”. Foreign can mean “foreign” or “overseas” while the Exchange can be interpreted as an “exchange”, in this case that the purpose is the exchange of currencies. And when combined, forex, or foreign exchange can be interpreted as a foreign currency exchange activities.
In one of the Wikipedia page explains that forex in Indonesian also known by several terms that Forex or Foreign Exchange Market. Both terms have the same meaning that a trade involving two currencies of different countries as the trade objects. Deeper in the process of buying and selling the currency there is the role of the existing major financial markets around the world and lasts for 24 hours a day, respectively.
In the rotation, the global forex or forex market will start from the state of New Zealand and Australia, which occurred at 5:00 a.m. to 14:00 pm. Turnover will then move towards the west towards the Asian markets which took place at 7:00 to 16:00 pm, following European markets at 1:00 p.m. to 22:00 pm, and the last one is the American market at 20:30 to 10:30 pm. After the American market is over, the rotation will return to New Zealand and Australia market, and so on.
The presence function Forex Market
In the process, forex has several major functions are very influential to the perpetrators. The function of the forex divided into three as follows:
# 1. The first function is to facilitate the process of exchange. As we know, in the course of economic activity in everyday human beings sometimes require funding in the form of another country’s currency. Whether it is used in business, travel, shopping or storage.
Currency exchange can be done with a system called Clearing. Well one of the functions of the forex itself is providing these services. For simplicity, the example of these services is the currency exchange service you normally encounter in various places, ranging from banks to exchange counters in various places.
# 2. The second function is to conduct hedging. Hedging in the Indonesian language also called hedging. This is an action that is commonly performed by a foreign exchange trader as a “guarantee” that the value of the investment fund does not decrease or loss when he sells currency in two different markets. In this case also the role of banks, both domestic banks and foreign banks the US as the guarantor of the fund.
# 3. The third function is to conduct arbitration. Arbitration is essentially the difference in interest rates of two different currencies. And arbitration actions are actions taken to benefit from differences in currency itself. In simple terms this action is done by buying a currency that is being undervalued in a country, and sell the currency in the country where the high value of the currency.
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Perpetrators In Forex Market
In the forex market is certainly there were several parties involved and influence in it or the term as a player in that market. Players forex market can be divided into 6 as follows:
- Bank
Banks play an important role in the forex market. In this case, the technical term interbank money market (interbank). Interbank own role to meet virtually all the needs of the buying and selling as well as the velocity of currency in the field of global business. In performing its functions sometimes the bank will make the process of buying and selling currencies on behalf of its customers. But in large quantities, then the transaction will be carried out on behalf of the bank itself.
Interbank itself is also used by the forex broker to benefit in bringing together sellers and buyers of forex directly. From there a forex broker can benefit not less. But this time, the system used the interbank money market has been developed with the electronic system more effective and efficient.
- Business Needs
The second forex market participants are the needs of companies or businesses when making payments using foreign currencies. Basically a business sometimes requires funding in the form of foreign currency when conducting a transaction, but actually not too pronounced direct effect on the state of a currency.
Will discuss the company’s different result if large corporations. Here, large companies have a big influence and unexpected if they take action release foreign currency in large amounts. When they let go, the market or speculators can not expect it directly. As a result, the value of a currency can move up or down.
- Central Bank
Central Bank in that it has a role as controller of the money supply, inflation and is also related to interest rates. With a very important role, the Central Bank could easily affect the forex market developments.
One of the advantages of the Central Bank of a country is only by making intervention alone is enough to create turmoil on the state of the forex market or foreign exchange. This is due to the concerns with the actions of the Central Bank could raise or lower the interest rate currencies. Then a little more continuity of the currency market was determined by the movements of the Central Bank in the country.
- Investment Management Company
Generally Investment Management Company who play in the forex market do not make this effort as the main source of revenue especially as the pace of speculation. The company is a regular body that manages several funds such as pension funds or donation from the foundation. All the funds that they use on the forex market sometimes just “playing” to get additional revenue for the company.
- Hedge funds
Next is hedge funds. Hedge funds are a company that is playing in the forex market as speculators. Funds they loose capital is truly maximized in the forex market, there is no other reason for them except to benefit greatly from such activities.
What is surprising is Hedge funds have the ability to grow large even have the ability to affect currency values better than the Central Bank. If things are going to be very difficult to move the value of the currency is good because it is under the control of a koorporasi are oriented at an advantage.
- Broker / Broker
The latter is a forex broker. Until recently, the forex broker is still the most widely sipped the profit from the forex market. Basically forex broker can be an individual, group or company that has a job to bring the customers / buyers with sellers of foreign currency.
The existence of forex broker is very helpful for forex business people or commonly called forex trading. But not infrequently, forex brokerage firms are not responsible for false alias instead become the most detrimental, especially for the new players in the forex business.
Here was a review of the definition of what is forex, function, as well as the actors in the forex market. Hope can be a useful additional knowledge. And in closing, here is a video about the forex could be an additional reference for you.