The first thing to do is to outline what forex is and how it works. “Foreign Exchange Market” or forex for short refers to all transactions that revolve around the buying and selling of foreign currencies. Even if you exchange your euro for another currency before your next trip to Denmark, this is already part of the turmoil in the currency markets .
Foreign currencies are simply the designation for online trading platforms . You can now purchase these foreign currencies from a broker in so-called lots – standardized units (usually 100,000 units). With the help of the lever, it is possible that the investor only has to deposit between 0.25 and 5% of the traded amount on average. The broker provides the rest.
The broker automatically closes the trade when the funds on the deposit are used up. This means that private individuals with a relatively low risk can also participate in Forex. According to Statista, the amount of sales that are moved per trading day on the foreign exchange market has increased from just under 1.2 trillion US dollars in 1995 to almost 5.1 trillion US dollars in April 2016. This makes the Forex market the largest and most liquid financial market in the world.
Payment transactions are in US dollars
The US online trading uk has been the undisputed reserve currency in the world economy for decades. According to a study by the Bank for International Settlements (BIS), the dollar is involved in over 87% of all foreign exchange transactions.
In addition, world trade is still predominantly in dollars. Although Europe is three times as active in trade with the world than the US, Europeans have to resort to the American currency again and again for their exports. This is supported by the so-called Swift statistics, which show international payment transactions. It shows that the dollar currently accounts for 44% of international payments. He drew a large part of his strength, or still draws it today, from precisely this quality.
The value of the dollar has a major impact on the entire world economy. If the FED increases the key interest rate, this increases the demand for the dollar worldwide. This means that money is flowing out of the emerging markets and causing turbulence there.
Especially if you have committed the economic cardinal error and borrowed money in a foreign currency, in this case in dollars, there is a high risk of having problems paying off the debt. Then when the economy suffers as a result of the outflow of capital, the appreciation is twice as painful. Such an increase has only happened twice in the past and a further hike in the US key interest rate could follow at the end of this year.
Countries by currency reserves or importance for the Forex
While global Trading UK reserves peaked in 2013 at $ 11.685 trillion, they have since declined by nearly 10 percent. In 2016 they were just $ 10.715 trillion.
According to data prepared by Statista and issued to the International Monetary Fund for February 2017, the following countries hold the largest currency treasures in their hands.
Currency reserves mean the assets of a central or issuing bank in foreign currencies, precious metals, special drawing rights or reserve positions in funds held by the IMF to influence the currency market or to cover foreign trade deficits.
According to Reuters and the IMF, global foreign exchange reserves were only 10.8 trillion US dollars five months ago instead of 11.06 trillion US dollars. The share of the US dollar is just over 63%, which corresponds to the volume of around 4.94 trillion. The Chinese yen is around one percent. The euro makes up around 19.7% of foreign exchange reserves.
- China has been number two on the list of economies since 2010. In 2014, China even overtook the US in terms of purchasing power. It has foreign exchange reserves of $ 3.2999 trillion, excluding Hong Kong. Economic growth is set at around 6.5%.The economy in the Middle Kingdom is strongly oriented towards exports; foreign trade has grown by more than 1000% in the past twelve years. With Shanghai, China is home to the largest container port in the world and, without Hong Kong, is represented in the top 10 two more times. This leads to tension in monetary policy. A yuan that is too strong makes exports more expensive and leads to a collapse in the export of goods.
A yuan that is too weak is dangerous for the country’s economy.
If the value is too low, foreign investors will withdraw their money. The Chinese government is currently trying to strengthen the domestic forex Brokers against the dollar. The Chinese central bank had to sell foreign currency reserves to compensate for the fact that more and more Chinese wanted to diversify their assets and, among other things, acquired large amounts of dollars. This step was necessary to prevent the yuan (renminbi) from devaluing too much against the cfd trading. By 2020, the government wants to completely open the currency for trading and expose its value to the influences of supply and demand.For the near future, it is planned to position the state-owned companies more in line with the market and more competitive, to expand the value chain in the state and to specialize in strategic technologies such as information technology, biotechnology or aerospace technology. In addition, the “green economy” and robot technology are to be expanded and promoted. However, the investment conditions for foreign actors still need to be improved. However, negotiations are currently underway with the EU regarding a comprehensive investment agreement.