In a typical activities of forex market, one party will purchase a quantity of a currency by paying with a quantity of another currency. Therefore the Forex determines the relative values of different currencies. For example, how many US dollars you can buy in exchange for one pound sterling. Financial centres around the world function as trading points, allowing a wide range of different types of buyers and sellers to operate around the clock.
Companies, banks and institutional investors all need to change currencies when they conduct business overseas. Central banks are also big users of the Forex. Trading in the UK accounted for 36. UK the most important global centre for foreign exchange trading. It does not have a central exchange or clearing house.
Forex brokers or traders call each other up to trade and negotiate directly with one another, using online trading platforms. The biggest users of the Forex are the banks, because they operate all over the world and have to make loans in many different currencies. Most Forex trade is between either companies and banks or institutional investors and banks. Therefore banks act as the intermediaries in most transactions.
Currency trading happens continuously throughout the day and night, excluding weekends. An important part of the Forex market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. This is known as direct investment. For example, a British business importing US goods will need to buy US dollars to pay for the goods.
The Forex is also used by institutional investors for indirect investment. They invest in companies all over the world by buying stock and shares. If an investor is buying shares in a company listed on a foreign exchange, it will need to change currency in order to buy those shares locally. Central banks are also big users of the Forex market. They amass reserves in a combination of currencies.