Finance & Business
Where is currency trading conducted?
Foreign exchange trading has also become interesting for private investors in recent years. On this page we present the most reputable and best providers on the German market.
Where is currency trading conducted?
Foreign exchange trading is carried out at financial centres worldwide. It is carried out decentrally all over the world at different locations. The trading partners are usually the credit institutions or intermediary traders on the one hand and the investors on the other. Via the internet, foreign exchange trading can be carried out quickly and efficiently regardless of place and time. In addition, the internet offers many opportunities for automated trading outside regular business hours. Foreign exchange trading is usually conducted by telephone via electronic trading systems and foreign exchange dealers, known in the trade as brokers. The most significant trading system is forex trading. The electronic trading systems and the brokers capture the supply and demand on the financial market.
Foreign exchange trading by banks mainly relates to bank deposits and capital deposited with foreign credit institutions. Foreign exchange can be transferred by cheque or held in an account as electronic foreign currency. With currencies, you hold banknotes in your hands; with foreign exchange, the transfer of currency is handled electronically on the global foreign exchange market.
How do market participants trade currencies?
Currencies are claims on foreign currencies. They can consist of cheques, credit balances, bonds or bills of exchange on foreign currencies. The term “foreign exchange” is also synonymous with the word “currencies”. Foreign banknotes, however, are not referred to as foreign exchange, but as foreign notes. A distinction is made between spot and forward foreign exchange. In the case of spot currency, the buyer expects delivery within two days, while forward currency is available to the investor (buyer) at a previously fixed rate at a later defined date. Investors and traders cannot buy or sell currencies, they can regularly only exchange them for another currency. Foreign exchange trading is based on trading in currency pairs, as one currency is exchanged for another. The basis for the exchange of one currency for another is the respective currency rate.
Through this rate, traders can determine how many units of one currency are currently exchanged for a certain amount of the other currency. The quotation is always made to the fourth decimal place. With the buying and selling of foreign exchange, the trader acquires only the right to the acquired currency, but not to a physically tangible currency itself. Foreign exchange trading enables currency option transactions or the purchase and sale of options. The buyer is entitled to buy or sell a previously fixed amount of a specific currency on a fixed day or within a fixed period at a previously defined price. The nominal exchange rate forms the price relationship between the currencies involved.