Tag: forex markets

Dollarization: The Ties That Bind Countries Together

Dollarization: The Ties That Bind Countries Together

Financial Markets Explained
The Basic Premise of Dollarization An important concept that comes into play in the forex markets is that of dollarization. Many countries have their own currencies though some choose to band together in a unified economic front. The Euro being representative of several European countries is an excellent example. A country may choose to adopt another country’s currency rather than printing their own for use on the world stage. Like anything, it has benefits and drawbacks. The announcement is typically followed by a drastic fluctuation due to the weighing economic factors. El Salvador, for example, uses the United States Dollar as its national currency. Though it does, it does not have any right to print United States Dollars or take major actions to affect its value and position. It

What are Market Makers in Forex Trading

Trading Articles
Market makers make or set both the bid and the ask prices on their systems and display them publicly on their quote screens. A market maker provides liquidity for a particular currency pair and stands ready to buy or sell that currency by displaying a bid and offer price. A market maker takes the opposite side of your trade and has the option of holding that position or partially or fully offsetting it with other dealers, managing their aggregate exposure to the market. Market makers earn their commission from the spread between the bid and offer price. The exchange rates that market makers set are based on their own best interests. On paper, the way market makers generate profits for the company through their market-making activities is with the spread that is charged to their customer...

Forex Spreads Explained

Trading Articles
The difference between the bid and the ask price of a security or asset is known as a spread. In other words, the difference between bid and ask price is known as a spread. In the forex markets investors trade one currency for another. Therefore, currencies are quoted in terms of their price in another currency. Currencies are always quoted in pairs (e.g. USD/EUR). The first currency is called the base currency and the second currency is called the counter or quote currency (base/quote). For example, if it took EUR1.20 to buy US$1, the expression USD/EUR would equal 1.2/1 or 1.2. The USD would be the base currency and the EUR would be the quote or counter currency. Forex quotes are always provided with bid and ask prices, similar to what you see in the equity markets. The bid represe...