Forex is a market for interbank currency exchange at free prices. In Russian, the Forex market is often reduced to speculative currency trading to generate income. However, speculation is not the only possible target of Forex trading.
There are four main types of operations in the Forex market. These include trading, speculative, hedging and regulatory. The main volume of transactions falls on speculation aimed at making a profit.
Speculative and trading operations in the Forex market
Some people use the Forex market to exchange currencies. For example, multinational corporations that sell goods in one country and incur expenses in another. For them, the main advantage of Forex is its convenience. Such operations are essentially trading. The need for their implementation is due to economic feasibility.
Still, the bulk of the Forex market participants are currency speculators. Their goal is to profit from the price difference between a currency pair, such as the euro-dollar.
In 2010, the volume of daily transactions in the Forex market amounted to $ 4 trillion.
Margin speculative trading is focused on fixing the current currency quotes, but it is carried out without real delivery, i.e. it is not trading.
Forex trading is one of the high-risk earnings and requires special knowledge and training so that the trader does not lose the deposit.
Many speculative transactions are carried out using leverage, since many novice traders do not have the required amount to carry out transactions. Leverage is the ratio of the deposit amount to the purchased currency volume. It can range from 1: 1 to 1: 500.
Forex hedging
The purpose of hedging in the Forex market is to insure their own capital against risks caused by fluctuations in foreign exchange rates. Its meaning lies in fixing the value of the company's funds by concluding transactions in the Forex market. Hedging leads to the disappearance of exchange rate risks. This provides the company with the opportunity to plan activities, determine in advance the trade margin, calculate profits, etc.
During the period of the financial and economic crisis, the popularity of hedging operations has increased significantly.
Hedging can be carried out both from the position of the buyer and the seller. Buyer hedging is used to reduce the risk associated with a possible increase in the price of a product. The goal of hedging a seller is exactly the opposite.
Regulatory operations in the Forex market
Central banks carry out regulatory operations. Through them, there is a targeted impact on the country's exchange rate. The meaning of such operations lies in the purchase and sale of foreign currency by banks. As a result, the state controls the exchange rate of the national currency and regulates the change in the foreign exchange rate.
