With the economic globalization, the interaction of economic activities among countries, including trade, tourism, consumption, and investment in various assets, becomes more and more frequent. In the process, currency transactions naturally occur. Forex / FX is the financial market which deals with currency transactions all over the world in a decentralized form.
Liquidity can be said to be the measure of the ability of an asset to convert into cash. The higher the liquidity of the asset is, the easier it is to be converted into cash, and it does not need to suffer too many unnecessary price losses due to supply and demand problems in a specific period of time.
Thanks to the advancement of information technology and the ubiquitous use of computers, trading foreign currencies (Foreign exchange, Forex) has become one of the main trades in the market. Forex trading’s popularity can be attributed to its own multiple advantages which attracted a great number of brokers who have been in the business for many years. Investors from all around the world can easily access to the information and news of the forex market.
Online forex trading is now very popular, that mainly in the way of margin trading. The most commonly seen method is for investors to open an account with a forex broker and deposit an initial capital, which is also deemed as so called “margin deposit”.
The Dollar Index measures the value of USD to see if the dollar is stronger or weaker against six other currencies. Acronyms of the Dollar Index in the financial market include USDX, DXY and DX—the trading code in Futures. USDX now includes Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swedish Krona (SEK), and Swiss Franc (CHF). However, since Euro had not been launched when USDX was introduced, the index had a currency basket of ten currencies including Deutsche Mark, Italian Lira, French Franc, Dutch Guilder and Belgian Franc in the earlier years.
A reserve currency refers to foreign exchange reserves held by a central bank or financial institutions of a country. Constituting a certain ratio, foreign currency is an important part of foreign exchange reserves of a country. Foreign exchange reserves are used in international trading and investment as well as repayment of foreign debts owed by the government. On the issuance of local currency, foreign exchange reserves also serve as a basis of the currency’s level of confidence. Higher or lower foreign exchange reserves influence the stability of exchange rate of the local currency.
