The Foreign exchange market is an important part of the world economy.
It is the largest and the most profitable financial market in the world and operates in a decentralized manner.
Each country’s financial center works as an anchor for currency trading between two traders in a 24 hours continuous operation on week days.
Each financial center values different currencies relatively. Its purpose is mainly to assist international investment and trade by converting one currency to another currencies.
Foreign exchange market helps in direct speculation for the differences in interest rates between two currencies and the real value of the currencies.
The foreign exchange market Nigeria opens up every day over the counter, allowing buyers and sellers to deal with each other. There is absolutely no clearing house or central exchange.
Ordinary trading deals with goods. You exchange goods for money. Foreign exchange market relates to currencies.
You exchange one foreign exchange for another currency. You will not get any commission based on buying or selling.
You sell a currency to get another currency. You gain profit with regards to the difference of worth between the two currencies.
Putting it straight, foreign exchange market is trading related to currency conversion.
Participants in the foreign currency market are large banks, institutional investors, corporations, retail investors, central banks, currency speculators, governments, and other financial institutions.
The foreign currency market is allocated into numbers of access in which the inter-bank marketplace is on top of those levels. Securities dealers and big commercial banks transact with each other.
The main difference relating to the ask prices and bids in this level is not known to players outside. According to Stock market watch, about 53% with the overall Forex volume is considered to be transacted in the inter-bank market where a trader, who guarantees huge numbers of transactions for huge amounts, can ask for a better spread.
Spread is seen to be the distinction between bids and ask price. A better spread means the main difference relating to the prices is smaller.
Besides the inter-bank market level, the next would be the smaller banks, large multinational corporations, large hedge funds, and retail foreign exchange market makers in Nigeria.
The economics of the Foreign exchange market Nigeria is influenced by market psychology, political conditions, and economic factors.
In cases of unsettling international events, traders will move their assets towards currencies and investments which can be considered safe such as gold, Swiss franc, and the US dollar.
Anticipations from the current government administration of a country and political instability can also have profound effects on currency trading. Any political upheaval or destabilization of governments can affect the value of a country’s currency negatively.
Economic policies and scenarios also affect foreign exchange market trading. A strong national economy can have a higher currency value while a country in financial crisis every year can have a drop in its currency value.
In overall, I would say that the most liquid financial market across the world should be in the Foreign exchange market.
It is just a unique market with large volume of highly liquid assets being traded yet with surprisingly low margins of profit when compared with other financial markets.
The foreign exchange market is seen to be the closest to perfect competition.