Foreign money exchange is due to the global trading system between countries involving various currencies around the world. At about 90s foreign money exchange is only done by big capital owners and financial institution that is recognized by the international market. Basically, it is purchasing a particular currency to be used as payment for goods or services used, for the payment of economic transactions, such as exports or imports. Surely there will be a difference in value between each currency.
Referring to the types of currencies are traded it, we can divide into two types of currencies in foreign exchange this money.
1. Major currencies, they are the currencies that can affect other currency and most widely trade by the perpetrators of foreign money exchange: ie. USD, GBP, JPY, Euro, AUD.
2. Minor currencies: they are usually the local currency of the developing countries.
Currently, foreign money exchange can be done by anyone in the world; of course, this refers to the system of regulations in each country. Due to constantly fluctuating currency values, then the trader can make profits or losses depending on the price movement occur.
By the online system trading, the trader can make transactions more freely. In this system, traders facilitated by the broker. Traders can use software that will connect to the broker server and then broker server system will monitor currency exchange rate fluctuations which are traded.
Generally, foreign money exchange(FME) online trading is slightly different from the common market. There is only one market maker only for the centralized market, but there are many market makers for foreign money exchange online trading.
Brokers have a computer that is connected to the market maker. Computer network at this broker will be connected with a market maker, to finally get to the interbank market. Traders can use a computer that is connected to the Internet to make buying or selling activity.
Currencies are traded in pairs. All currency pairs with USD are also called the major pairs. They are: EUR / USD, GBP / USD, USD / JPY, and USD / CHF.
Because in every foreign exchange transaction, there must be an exchange between currencies or the sale and purchase transactions. If you exchange Euros to dollars, then you said to buy dollars and sell Euros. Whereas if you exchange your dollars for Euros, then you are said to be selling dollars and buying Euros.
The first currency in the pair is called the base currency whereas the second currency in the pair is also called the cross currency. This means that there is a forex currency pair’s standardization. Example: EUR / USD unusual written upside USD / EUR. If you want to buy EUR / USD, is unusual if you say want to sell USD / EUR. But to say you buy EUR / USD.
Currently, the total daily transactions on the stock exchange foreign money could reach more than 2 trillion USD.
The Actors foreign money exchanges are:
Bank. The Bank will form a network of forex trading in the interbank network. A bank can trade up to billions of dollars in one day.
Multinational Companies. Multinational companies are companies that export or import activities to pay for goods or services using an agreed currency country.
Central Bank. Central Bank is a bank that aims to keep inflation and economic stability of his country. In carrying out its policies, central banks often make the country’s currency value changes.
Market Maker or Merchants. The market maker is a party against the transaction. If a trader to buy, the trader must do sell. And vice versa. Often companies also double as a market maker broker.
Brokers. The broker is an intermediary that connects the traders to trade. Brokers benefit from commissions and spreads. Spread is the difference between selling price and buying price.
Traders or speculators. Forex trader is a player who aims to profit from the rise and fall of a currency relative to other currencies.