Domestic market is an internal market of a single country wherein
trading is based on the demand and supply of goods, services and
securities of that country. Foreign exchange markets, commonly termed as
"Forex markets" allow an entity to trade in other countries utilizing
the currencies of the countries. Imagine an American tourist traveling
to India, he or she will have to pay for the food in a local stall in
Indian rupees not in US dollars, for which the tourist must convert US
dollars to Indian rupees for the services rendered in India. If this was
not possible, would the tourist be able to travel to India! This is a
simple example of currency conversion. Companies, organizations, even
countries trade in currencies to meet their requirements,
making forex markets the largest financial market in the world. The
entities gain based on the movement of prices either upward or downward.
In cases, when buying takes places, and the prices are moving upward,
profits are made. This is termed as go LONG. In cases, when selling is
taking place and the price is moving downwards, profits are made again.
This is termed as go SHORT.
Domestic market is confined to a particular country, thus limiting
the chances of investment. It has a limited market size. Forex market
allows investments in other countries, bringing in expansions, exposure
to other work cultures, increase in the market reach, and thus
inevitably brings internal growth. The Forex market is also flexible in
the size of the deals, based on the capability and capacity of the
trader. It could be standard, mini or even micro making it a comfortable
form of trading even for a small trader.
Another important aspect is that a trader only needs to lock 0.2% of
his trading volume at any point of time for margins With 1:500 leverage.
This locked trading volume is termed as the good faith deposit and it
is on a temporary basis. In trading with a standard lot volume of say $100,000 the actual locked amount is only $200 (0.2% of $100,000)
One of most significant aspect of the Forex market is that an individual can directly trade online without the requirement of middleman. Usually no trading fee or commission is collected
when trading is done online. The brokers take advantage of the spread
i.e. the bid price or the ask price, the traders buying or selling
prices to or from the brokerage thus earning their compensations.
Demo accounts can always be created for practice before venturing into the real trading world.
The Forex market works continuously, even if the market is closed in
one part of the globe, it is working in the other part. It utilizes the
time difference between countries to ensure, that trading happens
24X5.The only exceptions would be weekends, making it possible to trade
anytime anywhere.
The Forex market is completely decentralized; there is no "one
office" or "one location" thus helping in increasing the workpower,
improving the work culture, improving the skillset in each country to
standardize to a global level. It also helps in amalgamating individual
trends, cultures, predictions of each country into a large overall view
of all the countries in the world.
The Forex markets help countries in taking immediate steps to
mitigate financial issues by utilizing the help offered by other
countries or agencies either through purchase or credit.
The domestic market has the disadvantage of limited resources, while
the forex market gives the advantage of utilizing the resources of the
entire world, of course based on the purchasing power as well as the
credit capacity of the entity. It is the most liquid market.
In this era, communication is a strength, which the forex market
utilizes, all decision can be taken over the counter electronically, and
it removes the limitations set by culture and language. Easy
communications, decisions and overall improvements in inter relations
between countries is a byproduct of this kind of marketing.
What makes forex market important and much better than the domestic
market is its ability to adapt, absorb and evolve keeping the whole
world in view, as a single entity with unlimited opportunities for
improvements, growth, expansions and thus create one large global
family!
About the Author
John Arnold
INTFX is one of the leading online trading company provides currency derivatives, Commodities
derivative, portfolio management. We are the... (show bio)