Potentially the most appealing aspect of the forex market is the ability to make large amounts of money on trades. This market is the largest of the financial markets and presents with the highest level of liquidity. In addition to these characteristics, there are also other original traits of the foreign exchange Sydney market which one must be aware of in order to be a successful trader. By knowing and understanding these aspects you will have a greater chance of obtaining new data and gaining greater profits over prolonged trading periods.
The characteristics of the market
Unlike the stock exchange market where trades are settle on a centralised exchange such as the New York Stock Exchange, the forex market has no central exchange base. Forex is conducted online or via telecommunications and works on an ‘over the counter’ nature. It has exchange bases; however these operate online and are located in different countries according to different time zones allowing for a 24 hour trading cycle. This being the case, a trader can trade at anytime Sunday to Friday.
The ‘over the counter’ nature of trading refers to price quotations of the different currencies. It allows for different quotations to be available at any one point in time. Stocks, however, do not present this characteristic quoting only one price on the exchange at any point in time.
A further unique characteristic which may be seen in the differing levels of price quotations available to traders. In the forex market, these are fluid and vary from currency to currency. However, in the stock and commodities markets, all traders must adhere to a set price.
The traders on the market
With the introduction of the increasingly popular online forex trading, the forex market is no longer restricted to banks and large corporations. Today individuals from any background are allowed to register as traders and trade on the forex market. However, central banks are still the most influential players in the trading arena, with commercial banks being the most dominant due to their corporate customers and large currency trading desks.
The different currencies on the foreign exchange Sydney market
Currencies differ on the foreign exchange market due to the influential effects of the intra-bank currency trading desks. These trading desks will take positions to cover commercial demand and are characterised by great currency volumes and tight spreads. While a highly competitive setting, it is seen that the large corporations tend to generally come out on top with retail traders having to contend with spreads much wider than usual.
Speculative and commercial transactions
In the forex market, the speculative positions are held by retail and individual traders and the commercial transactions by larger corporations. Generally, the speculative trades will outnumber the commercial transactions due to strong capital flow. The exact amount of difference varies so it is difficult to estimate an average. This makes the foreign exchange market highly sensitive to new information as an impromptu development causes speculators to review their original positions and readjust the standing trade making it vulnerable. In this instance, a commercial transaction may take the upper hand and gain the profit causing a loss for the trader.