Features of the Forex market. Trade without real delivery. Value Date

What is FOREX. History and development.

The birthday of the FOREX market, no doubt, can be considered March 16, 1973. It was on this day in Kingston, Jamaica, that an agreement was signed on an international monetary system based on the free conversion of national currencies equivalent to the US dollar, which replaced the stationary peg to gold. FOREX operates around the clock seven days a week. But, usually, from Monday to Friday, trade is limited due to the weekend on exchanges and banks. The daily Forex market turnover exceeds six trillion dollars.

The principle of trade. Currency delivery and value date

The very concept and abbreviation FOREX means the exchange of one currency to another (Foreign exchanges). This means that there are always only two currencies. They are called currency pairs. What is this we consider using the example of the EURUSD pair.

This means that we buy the first currency, the value of which is taken as a unit, and we perform the calculation using the second. The ratio in a pair is called the exchange rate between these currencies. If the rate at the time of the transaction is 1.1500, this means that 1 EUR costs 1.15 USD.

Very often, after buying the base currency, after some period of time, it will necessarily be sold at the exchange rate that will be on the market at that moment. That is, the actual delivery of the currency purchased by the buyer does not occur. In traditional currency transactions (payments and transfers, when the sending and receiving of funds takes place in one currency) there is a concept of a value date this is the date the currency was received by those to whom it was sent.

Forex is a spot market this means that the value date is always tomorrow. Every day at 00-00 o'clock the so-called transfer of position occurs. The transaction closes at a price of 23-59 and reopens at a price of 00-00. There are two mechanisms for performing this operation. The first one is that the transaction is really reopened and the difference in the operation is recorded on the account balance. The second is the transfer of the position at the opening price through the swap operation. A swap is the cost of transferring a position and is determined by the ratio between the rates of central banks (in our case, the ECB and the Fed).

Thus, a feature of the forex market is the constant transfer of the delivery date to the future and usually delivery never happens. The constant pushing of the date using the swap operation ends with the closing of the transaction (conducting the opposite transaction).