Current Types of Forex Trading Systems
a) Free floating exchange rate system. Supply and demand the only factors that determine the value and the exchange rate of currencies. Market forces influence this kind of system. Governments have no influence in this type of market because they are not allowed to interfere. Trade flows and capital flows directly impact the exchange rate in this system.
b) Semi-fixed exchange rate system. There is a range under which the currency is permitted to move. For example, the pre-set economic policy targets of countries apply in this type of system. In simple terms, it is a cross breed between government interference or influence in the market, and the forces of supply and demand in the market.
c) Fully fixed exchange rate system. As the name suggest, the currency is to be maintained at a specific target. In this system, the government through the central bank system directly participates in determining the rate of foreign exchange. The government is issuing a central rate that is meant to be maintained. Fluctuations, either upwards or downwards that are too far from the range set by the government, causes them to take action and intervene in the market. Speculation in this type of system is drastically reduced. The main benefit of this system that it gives the country’s exporters and importers a greater certainty when it comes to foreign exchange rates.
d) Flexible exchange rate system. In this system the supply and the demand of foreign currency is under the close watch of the government. The central bank monitors the exchange rate. They intervene when they deem it necessary.
Important to note these are just some of the types of forex trading systems in the market. The nature and complexity of the world Forex Exchange market continues to adopt new types of systems. Sometimes, different systems are integrated and create hybrid systems because of changes in government policies, economic crisis and changes in countries economic status, investor speculation and “moods” of the markets, etc.
Markets are more and more inter-connected through technological advances has made it even easier to participate in the forex exchange. It is possible for you to sit at home, conduct various transaction and speculative investments in markets from any place in the world.
