Despite its often dubious reputation, the foreign exchange market is a fairly straightforward, decentralized, global market for the trading of currencies. Determining the foreign exchange rate, it includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume, it is by the far the largest market in the world, even far out trading the Credit market.
1. Trading characteristics
When a market is decentralized, it means there is no unified or centrally cleared area for the majority of trades, also meaning that there is little cross-border regulation. This over-the-counter nature of currency markets, essentially means that they are part of a network of interconnected markets, where different currencies instruments are traded.
Basically what this means is that there is not a single exchange rate, but rather a number of different rates or prices, which can fluctuate depending on what bank or market maker is trading, and where it is. That being said, due to arbitrage, or the simultaneous buying and selling of asses, rates tend to be quite close.
2. Major centers
The main trading centers are London and New York City, though Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day, as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session.
3. Traveling and foreign currency on the go
People most frequently encounter the foreign exchange market while traveling. From buying money online to grabbing it at the airport, each common method has its pros and cons. If you have a credit card for example, you can generally use it just as you would at home, card issuers typically tack on currency-conversion fees of 2 to 3 percent for international transactions, you’ll get the best exchange rate and fees that are lower than those associated with exchanging cash.
4. When it’s cash you need
Depending on your bank, your debit card can also be used in international ATMs to withdraw local currency. Most banks tack on fees that can add anywhere from 3 to 8 percent. But a few have international branches or partners that allow you to use your ATM card fee-free in most cases. Check with your specific bank about its policies, and here’s a tip, if you do have to pay international transaction fees, minimize them by withdrawing larger amounts less often.
5. Ordering Online
That being said, sometimes you want to have cash in hand immediately upon arriving to your destination. There are a variety of companies available that will deliver foreign currency directly to your home. Although there is usually some fee associated with this service, it can be a small price to pay for having complete peace of mind right from the beginning of your trip.
6. Transferring Money
In addition to travel, sometimes we need to convert large sums of money for other reasons. When transferring money from one currency into another, it is important to do some research. Banks can charge large fees and can end up knocking hundreds of dollars off the final amount of your transaction. You want to find a currency exchange service provider that is willing to offer you advice about their services and a best rate guarantee for your amount.
7. Buyback protection
It can also be worth looking for an institution will offer you some type of buyback protection. This is basically an agreement that they will allow you to return some portion of your currency if you don’t use it. A good buy back program will offer to buy back the currency at the same price it was sold to you. This will usually only include currency bank notes, not coins, and will likely be subject to some conditions.
