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What is Forex Trading?

by jane bryon

To understand forex trading, you must have basic knowledge about it.  So what is forex trading? Forex trading is all about buying and selling currencies. It is a decentralised money market where you deal with currency pair ( buy one currency using the other). It is the largest liquid market which operates 24 hrs. Currencies play an important role in a country’s economy. Why are these currencies traded? They are traded or exchanged as they make foreign trade and business feasible.

Imagine you taking a trip to Europe to enjoy your vacation. As you’re travelling to a foreign country you would have definitely packed all your necessities and other important stuff. What about money for shopping and paying bills, you should exchange your currency to Euros right. Right here the transaction you did to exchange your currency is a forex exchange.

Based on the demand and supply of currency its foreign exchange rate is determined and it’s not constant, it fluctuates continuously. There is not much difference between stock trading and forex trading. In stock trading, you trade with stocks of a certain company but in forex trading, you trade with currencies around the world.

There is a chart that shows you the directions where currencies are headed. There are 1 min, 15min, 1hour charts to understand currency directions. Considering all the necessary factors, if you think particular currency value will increase, then buy it now sell when the price raises.

What are spot, future & forward markets?

Forex market is not completely about buying and selling currencies. There are three ways in this currency exchange also like spot markets, future and forward markets. Individuals, corporations and institutions trade forex in these three ways. Spot markets are different from future and forward markets. Future and forward markets are based on the spot market. The spot market is all about the present, it is where currencies are bought or sold based on their current prices. That current price is determined by many factors like demand and supply. That price is based on current interest rates, political scenarios, economic developments and also depends on the future performance of currencies against each other. Deals in a spot market are called “spot deal”. The deals are settled in cash and it takes a minimum of 2 days for the settlement.

Forward and future markets are different from spot markets. It all about the future, they don’t actually deal with currencies. These markets make contracts about specific price per unit of a currency for a future date settlement. In future markets, these contracts are bought and sold on the settlement date. These contracts have details regarding the number of units traded, settlement date and minimum price amount that cannot be customized. Forward contracts are bought and sold OTC between two parties. In these type of contracts, the parties make their terms and conditions.

Both future and forward contracts are settled for cash. These contracts act as a safety net when trading with currencies. Most corporations use these contracts to hedge over future fluctuations on exchange rates. Individuals can also take place in this market.

All about forex markets

Units used in forex trading is called PIP (Percentage In Point). PIP is basically used to measure the size of currency in the transaction. GBP/USD has moved from 1.1069 to 1.170 than 0.0001 raise there is measured in PIP’s. The seven major currency pairs in the forex market are EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD.

Earlier only big corporations showed interest and invested in the forex market. But now the times have changed, individuals are also showing a lot of interest in the market. Watch your leverage well and you can earn good profits, but if your not careful enough you may face losses also.

There are so many companies available in the market that are providing you with free training and also allowing you to open demo accounts in which you can trade with currencies in the real market.

Forex trading will open you to the largest financial market and allows you to deal with a wide range of currency pairs. The best thing about this market is, it is open 24 hours and is divided into four sessions i.e., the New York session, the London session, the Tokyo session and the Sydney session.

If you are interested in the forex market, just don’t blindly jump into the market. It’s better to go all prepared take lessons on forex trading to avoid losses. Forex market is like a huge ocean so with experience you may drown to death. So go all prepared and earn a great return on your investment. Study the market before investing in currencies, be prudent while doing it and maximise your profits.

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