Money Markets in Forex Trading: An Academic Overview

Money Markets in Forex Trading: An Academic Overview

Overview of Forex Markets

Forex Market or Foreign Exchange is the global marketplace for buying, selling and speculating on the movements of currencies. The market is an extremely liquid one, with major currencies trading on it. Currency traders take advantage of its large-scale movements to benefit from speculative prices and generate profit. Furthermore, due to its worldwide availability, the FX market has become one of the most popular financial markets for traders.

The FX market is composed of various players which include, central banking institutions, commercial banks, brokers, market makers, speculators and hedge funds. Each of these players partake in the market by providing liquidity, creating market making strategies, and analyzing the fundamentals of the currency markets. Central banking institutions influence the FX market by setting the price of a currency relative to other global currencies. Through setting exchange rates, they are able to manage the supply and demand of currencies that are in play.

Currency Pairs

The FX market consists of different currency pairs, each of which includes two different currencies. Currencies are primarily priced relative to each other. As such, the FX market consists of fixed exchange rate pairs. The base currency of the currency pair is the currency that is priced, while the quote currency is the currency that the base currency is priced against. Traders use these currency pairs to generate profits.

The most popular currency pairs include the EUR/USD, GBP/USD, AUD/USD and USD/CHF. Other popular currency pairs include the JPY/USD and CAD/JPY. These are the major currency pairs. These currency pairs are typically traded for speculating on short-term price movements as well as long-term investments.

Liquidity in the Forex Market

The FX market is one of the largest liquid markets in the world. This means that the large volume of transactions occurring on the market provides a high level of liquidity. This liquidity allows traders to buy and sell currencies relatively easily. Furthermore, the liquidity of the FX market creates an extremely efficient market that is able to provide its participants with a wide range of investment opportunities.

Due to this liquidity, traders have access to more precise pricing, as well as being able to benefit from market volatility. Essentially, traders can easily enter and exit positions with minimal costs. This liquidity is further assisted by the use of currency options, futures, and other derivatives.

The FX market has seen significant advancements in technology over the years, enabling traders to take advantage of the market 24 hours a day. Furthermore, improvements to online trading platforms have enabled traders to engage in FX market transactions with ease. As such, the FX market provides investors with an accessible and liquid vehicle to trade and speculate on the prices of currencies.

Latest News on the Money Markets Review

CNBC is the world leader in business news and real-time financial market coverage. Stay up to date with the latest news and trends in the money markets with CNBC-s articles, videos and podcasts. In addition, the financial market commentary from BlackRock Investment Institute gives an insight into the macro and microeconomic aspects of the money markets.

The Outlook for Money Markets During 2020

2020 has been a volatile year, and the money markets are no exception. Equity markets have been up and down, while bond yields remain low, making it difficult for the money markets to predict future returns. As geopolitical tensions continue to rise, as well as the uncertainty of a global pandemic, investors are looking to the money markets for more reliable returns.

What Should Investors Look For in the Money Markets?

It is important for investors to understand the key drivers of the money markets before attempting to invest. This includes understanding the macroeconomic backdrop, the monetary policy used by central banks and the changing geopolitical landscape. Understanding these factors can help investors make informed decisions when considering money market investments.

In addition, it is important to consider the risk-return profile associated with money market instruments. Money market instruments offer higher returns than other investment options but also come with higher risks. Understanding the relationship between risk and return can help investors determine the best investment options for their individual needs.

It is also important to keep an eye on the changing economic and political situation when considering money market investments. Market movements can be affected by changing economic policies, central bank decisions and geopolitical tensions. Keeping up to date with current news stories can help investors stay ahead of the curve and make informed decisions.

Finally, it is important to diversify the money markets portfolio. Diversifying investments across several asset classes can help minimise risk and maximise returns for investors. This can include investing in a mix of money market instruments, including government bonds, corporate bonds, T-bills and equities.


The money markets can be a complex and difficult sector to navigate. Investors need to understand the macro and microeconomic factors that affect the money markets in order to make informed decisions. It is also important to consider the risk-return profile and diversify investments in order to minimise risk and maximise returns. By following these steps, investors can ensure they remain up to date with the latest news and trends and make the most of their money market investments.