Foreign Exchange, FOREX, FX, or Currency Market refers to the foreign exchange market. It is the over-the-counter (OTC) market in which the various national currencies of the world are traded. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. This market determines foreign exchange rates for every currency.
It is important traders understand how FOREX rates can affect the value of an international merger arbitrage spread. Including this additional variable can both enhance profitability and eliminate currency risk in both cash and stock deals. Although the inclusion of this additional trade in the strategy may at first seem daunting, it is in fact quite easy to accomplish. Many brokerage services offer FOREX trading on their platform. The spreads are extremely tight and the commissions are competitive. In addition to this, many spread betting firms offer access to the FOREX markets which may provide a tax free options to investors in specific regions of the world. As an initial guide, Merger Arbitrage Limited has a FREE FOREX calculator available on the Personal Finance Calculators page.
Trading FOREX
As well as incorporating FOREX trading into a merger arbitrage investment strategy, many traders will also use the currency markets to speculate. The liquidity of these markets is attractive to traders as well as the range of currencies offered. As many global events, not just financial or economic ones can affect the currency markets, the constant volatility can provide traders many opportunities for investment. Because of this, many automated trading services are in operation to “assist traders in losing their capital more efficiently“.
Market Structure
In terms of trading volume, the FOREX market is considered the largest and most liquid market in the world, followed by the Credit market, with trillions of dollars changing hands every day.
It is a globally decentralized market with no centralized location. Rather, the FOREX market is an electronic network of banks, brokers, institutions, and individual traders. However, regardless of market participant, trading is mostly executed through brokers or banks.
