Simple Explanation of Foreign Exchanges between Countries

Forget about the stock market for a while, the biggest market is the Forex market (foreign exchange market) because it is the market for all currency exchange and trade. Compared to security markets, the foreign exchange market does up to 7 trillion dollars daily. You might not understand how big the foreign exchange market is but I will give a little illustration, the annual GDP of a lot of countries except the United States and China isn’t up to the amount traded on the foreign exchange market daily.

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How do we have this large market

Unlike the stock market where commodities and securities are being traded in the local coin, the foreign exchange market deals with exchanging currencies of different currency placing a rate based on demand and supply. It is no doubt that a lot of people go on tourism, buy goods from different countries, pay for imports and services in other countries, send foreign currencies to people living in abroad and so on. This has made the market big and be able to handle large transaction.

When it comes to international trade, People trade currencies so they can be able to perform transactions in the currency of the foreign country but recently, a lot of people now trade on the buy and sell of the foreign exchange currencies on an open market. The growth of a country, the level and standard of living of a country is dependent on the foreign exchange rate of the currency and this is why multinationals, government, as well as speculators or traders make sure that the foreign exchange market is active.