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What is Forex Trading?

Updated on August 4, 2022 , 18546 views

Can you recall the times when you used to collect notes and coins as a child? Mostly, back then, children were more inclined toward foreign currency. Right from the signature to the colour, everything seemed to give a twinkle in the eye.

And, as many of them grew up, there seemed a curiosity to find out the connection between one currency to that of the rest of the world. This concept revolves around trading foreign currency, also known as Forex trading. Curious to know more? Read ahead to find out.

Forex Trading

What is Forex Market?

Forex (FX) is a marketplace where several national currencies get traded. This one is the most liquid and the largest Market across the world with trillions of dollars getting exchanged every single day. An exciting aspect here is that it is not a centralized market; rather, it is an electronic network of brokers, individual traders, institutions, and banks.

The massive foreign exchange markets are situated in major global financial centres, like New York, London, Tokyo, Singapore, Sydney, Hong Kong, and Frankfurt. Whether entities or individual investors, they post an order to sell or purchase currencies on this network; and thus, they get to interact with each other and exchange currencies with other parties.

This forex market is open round the clock but five days in a week, except for any national or sudden holidays.

Forex Pairs and Pricing

The online forex trading takes place in a pairing manner, like EUR/USD, USD/JPY, or USD/CAD, and more. These pairings represent the nationality, such as USD would stand for the US dollar; CAD represents the Canadian dollar and more.

Along with this pairing, there comes with a price associated with each one of them. For instance, let’s assume the price is 1.2678. If this price is associated with a USD/CAD pair, it means that you would have to pay 1.2678 CAD to purchase one USD. Remember that this price is not fixed and can increase or decrease accordingly.

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How Trading Takes Place?

Since the market is open 24 hours during the weekdays, you can purchase or sell currencies at any given point of time. Earlier, currency trading was limited only to hedge fund, large companies, and governments. However, in the current time, anyone can continue with it.

There are several banks, investment firms, as well as retail forex brokers that can provide you with an opportunity to open accounts and trade currencies. When trading in this market, you buy or sell currency of a specific country in relevance to the other.

However, there is no physical exchange that takes place from one person to another. In this electronic world, usually, traders take a position in a certain currency and hope that there might be an upward movement in the currency while buying or weakness when selling so as to earn a profit out of it.

Also, you are always trading in relevance to the other currency. For instance, if you are selling one, you are buying another and vice versa. In the online market, profit can be made on the difference arising between the transaction prices.

Ways of Forex Trading

Basically, there are three ways that corporations, individuals and institutions use to trade forex online, like:

Spot Market

Specifically, this market is all about buying and selling currencies as per their current price. The price is determined by the demand and supply and reflects several factors, including political situations, economic performance, and current interest rates. In this market, a finalized deal is called a spot deal.

Forwards Market

Unlike the spot market, this one deal in trading of contracts. They are purchased and sold OTC between parties who comprehend the agreement terms themselves.

Futures Market

In this market, futures contracts are purchased and sold on the Basis of their standard size and date of settlement on public commodities markets, like the Chicago Mercantile Exchange. These contracts comprise certain details, such as units traded, delivery, minimum increments in the price and the settlement dates.

The Need for Training

In the dynamic atmosphere of forex trading, adequate training is necessary. Whether you are a veteran or an expert to currency trading, being well-prepared is essential to acquire consistent and satisfactory profits.

Of course, it could be easier said than done; but never impossible. To make sure that you don’t leave your success, never stop your training. Develop a fundamental trading habit, attend webinars and continue gaining education to remain as competitive as possible.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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s patil, posted on 1 May 21 2:17 AM

short and best for the beginner.

DR BHIMRAO ANANTRAO DESAI, posted on 16 Mar 21 9:02 AM

Excellent

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