Differences between Forex and traditional markets
But what are the differences between Forex and traditional markets? At first, the scale. Forex is an international tool enabling to cooperate partners from all over the World what makes it the biggest market ever. It is estimated that average daily turnover reaches $3980000000000 ($3,98 trillion), much more than NASDAQ (National Association of Securities Dealers Automated Quotations) or NYSE (New York Stock Exchange).
Also, the market’s liquidity is extremely high - loss of value of bought goods is almost unnoticeable. Transactions do not cause any significant changes of price.
On the other hand, some of restrictions need to be noticed. While comparing to stock markets, the most important difference applies to the price levels. Usually, prices are the same for all the customers, but not at the foreign exchange market, which has been divided into a few parts, called the levels of access. For example, the highest level is the inter-bank market (for the largest and the most influential commercial banks and dealers of securities. Foreign exchange companies (but not banks) offering their services to private consumers are placed at the lowest level of access.
There are also some technical features, which the success of Forex wouldn’t be possible without. Firstly, all the transaction are finalized through the Internet. There’s no specific place needed. Billion-dollar deals might be made from long-forgotten villages in Senegal or European business centers as well. The localization doesn’t matter. You need only an access to the Net. Secondly, the time doesn’t play such a big role. Forex works almost incessantly. The session starts every Sunday on 22:00 UTC and lasts till 22:00 UTC on Friday. According to the international character of market, the 24-hours trading time minimalizes the time zones’ influence on prepared transactions.
There is also a plenty of factors that modify the exchange rates.
The economic conditions are quite similar to those known from traditional markets but especially worth reminding are: government financial balance (budget deficits and surpluses, depending on their changes – widening or narrowing – have a big influence on each country’s currency’s value), international trade balance (usually, trade surpluses improve currency’s rate, inflation (especially its trends but levels, as well) and the economy productivity. Not as significantly as the economic factors, but also importantly political conditions influence on the exchange rates. Political stability secures country’s profitability, but the destabilization (Pakistan or Thailand, for example) has a really well-visible negative influence on currency.