photo credits to hansafx

The currency market is another term for the foreign exchange market. It is a global financial market for the purpose of trading currencies. The currency market establishes the different currencies’ relative values.

The basic purpose of a currency market is to help international investment and trade. This is being done by allowing businesses from different countries to convert native currencies to foreign currencies. The currency market also supports direct theories in the currencies’ value, as well as the speculations on the interest rate change between two currencies.

Normally, in a currency market transaction, one party buys a certain quantity of one currency and pays for it using a certain quantity of a different currency. The modern currency market began to be formed in the 1970s after 30 years of restrictions from governments on transactions involving foreign exchange. This was a time when countries slowly converted, from the “fixed exchange rates” to “floating exchange rates.”

What makes the currency market unique is that it is geographically dispersed and is in continuous, 24-hour operation (except on weekends). Trading in the currency market starts from Sunday, GMT 20:15 until Friday, GMT 22:00. This market offers the implementation of leverage in order to enhance margins for profit or loss, based in account size. Also, the currency market is unique in that it has a variety of factors that affect the rates of exchange between currencies. The market also has a vast trading volume that represents the largest class of assets worldwide. For these reasons, the currency market has been referred to as a market that is closest to perfect competition, despite currency interventions made by different central banks.