Compared with various trade markets, the currency market is 100 times larger than the New York Stock Exchange, and it is also 3 times as large as the bond market and equities market combined. International currency markets consist of commercial companies, central banks, hedge funds, banks, investors and retail forex brokers. It is the market, where participants from all over the world have the opportunity of speculating on different currencies. International currency markets are considered to be extremely efficient, as they are very large and liquid. Currency market is virtual, which means that there is no central physical location that is considered to be the foreign currency market. International currency transactions occur in a global computer network of banks and brokers throughout the world.
The currency pairs are usually expressed with the base currency, which is the first currency in the pair and it is followed by the quote currency. For instance, in the currency pair USD/JPY, American dollar is the base currency and the Japanese yen is the quote currency. The currency exchange pairs are associated with an exchange ratio. Let’s observe the following example: EUR/USD: 1.2836 / 1.2839. Here the first price represents the demand price, it is the Bid price or the cost of selling the euro. The second price is known as the Ask price or the cost of buying one unit of euro in dollars.
The difference between the sell and buy prices is known as spread. The smallest unit of measurement for a currency is known as pip. For most currencies, it is considered the fifth decimal digit. Since currencies are usually quoted to four decimal points, the last digit is the pip. For instance, if a price changes from 1.0745 to 1.0747, this would be a change of 2 pips.
Nowadays many people choose currency market, as it offers investors countless advantages, including leveraged trading, high liquidity, 24 hour availability and low transaction costs.