Forex – From Banks to the Internet
Ever since the 1970s, due to increasing globalization of international trade, international financial transactions are becoming more common as compared to 50 years ago. This has resulted in the Forex market undergoing a profound transformation not only in terms of volume traded but also in terms of coverage, structure and method of transactions. Among some of the major structural changes that have occurred in the Forex market are:
• Massive wave of deregulation in the global financial sector
Many Governments in countries all over the world have eliminated their control and the limitations placed on the financial sector in order to spur a growth in the financial system. The result of this is increased competition both domestically and internationally among the various financial institutions.
• Fundamental movement towards globalization and institutionalization in the saving and investment sectors
As a result of this amalgamation, financial institutions and fund managers around the world have more access to a greater pool of funds for investment purposes. With a view for diversification, investments pour across national borders and currencies in increasingly larger quantum as these institutional funds look for greater profitability.
If our world operates with just a single currency, there would be no Forex market or Forex rates. However, our reality comprises of differing sovereign nations with their own respective national currency. Thus, the Forex market plays a crucial role in helping to facilitate trades among the various nations of the world. Without the Forex market, there will be no mechanism for facilitating payments between exporters and importers of goods & services. Prior to the last two decades, the Forex market was generally determined by mainly the commercial banks as they were the main go-between for trading partners.
However, with the liberalization of the financial sectors, the Forex market had expanded exponentially from a situation the commercial banks were the main players among themselves to include a larger group of market participants. They included the brokers and market makers as well pension funds, hedge funds and investments firms. The focus of the Forex market widened from servicing international trading partners to accommodating huge amounts of overseas capital flows. As trading in Forex became more widespread, competition became more intense resulting in numerous firms beginning to offer Forex trading facilities to the small retail trader.
Immense technological progress in computing powers and the World Wide Web also helped to spurs the development of the Forex market. With increasing competition among the various financial institutions and brokerage firms, this has resulted in lower margin. The timely arrival of these technological progresses also helped these firms to lower their cost and offer even more competitive services for the small retail investors.
The internet allows for real time execution of trades and access to huge amount of global market information. The result is a paradigm shift from trading with a brick & mortar institution like a bank to a virtual world of online Forex brokers. Today, the financial markets are still undergoing developments. It has grown larger than anyone can ever envisaged and will continue to do so as the small retail investor becomes more and more sophisticated.
• Massive wave of deregulation in the global financial sector
Many Governments in countries all over the world have eliminated their control and the limitations placed on the financial sector in order to spur a growth in the financial system. The result of this is increased competition both domestically and internationally among the various financial institutions.
• Fundamental movement towards globalization and institutionalization in the saving and investment sectors
As a result of this amalgamation, financial institutions and fund managers around the world have more access to a greater pool of funds for investment purposes. With a view for diversification, investments pour across national borders and currencies in increasingly larger quantum as these institutional funds look for greater profitability.
If our world operates with just a single currency, there would be no Forex market or Forex rates. However, our reality comprises of differing sovereign nations with their own respective national currency. Thus, the Forex market plays a crucial role in helping to facilitate trades among the various nations of the world. Without the Forex market, there will be no mechanism for facilitating payments between exporters and importers of goods & services. Prior to the last two decades, the Forex market was generally determined by mainly the commercial banks as they were the main go-between for trading partners.
However, with the liberalization of the financial sectors, the Forex market had expanded exponentially from a situation the commercial banks were the main players among themselves to include a larger group of market participants. They included the brokers and market makers as well pension funds, hedge funds and investments firms. The focus of the Forex market widened from servicing international trading partners to accommodating huge amounts of overseas capital flows. As trading in Forex became more widespread, competition became more intense resulting in numerous firms beginning to offer Forex trading facilities to the small retail trader.
Immense technological progress in computing powers and the World Wide Web also helped to spurs the development of the Forex market. With increasing competition among the various financial institutions and brokerage firms, this has resulted in lower margin. The timely arrival of these technological progresses also helped these firms to lower their cost and offer even more competitive services for the small retail investors.
The internet allows for real time execution of trades and access to huge amount of global market information. The result is a paradigm shift from trading with a brick & mortar institution like a bank to a virtual world of online Forex brokers. Today, the financial markets are still undergoing developments. It has grown larger than anyone can ever envisaged and will continue to do so as the small retail investor becomes more and more sophisticated.
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