Forex or the ‘Foreign Exchange Market’ is remarkably the leading financial market in the world. Over $3.2 trillion is supposed to be exchanged between traders every single day – 3 times more than the cumulative amount of the US Equity and the Treasury Market combined.
Although there is no actual physical location or central exchange for Forex market, this global network is operated by banks, corporations and individuals who are interested in trading one currency for another.
There are four major currency pairs that you need to take into concern if you are serious about trading on the market:
- Euro against US dollar (EUR/USD)
- US dollar against Japanese Yen (USD/JPY)
- British pound against US dollar (GBP/USD)
- US dollar against Swiss franc (USD/CHF)
In the past, Forex was only accessible to large financial institutions and banks, however recent years have observed a series of advancements in technology that have enabled Money Managers and individual Forex traders to trade live – and in parallel – on the Foreign Exchange Market.
Traders can accurately trade from anywhere in the world: London, New York, Tokyo, Sydney, Zürich, Hong Kong, Singapore, Paris and Sydney, there is no bound to where and how you trade.
How does it work?
The trick to being successful in Forex trading is to first determine whether you think 1 currency will appreciate against another. If you feel this is the case, you can exchange the second currency for the first.
Alternatively, should this exchange ultimately work out in your favor, you may then make the reverse deal and exchange the first currency for the other.
Types of Forex Trading
There are 3 ways to trade with Forex: spot market, forward market and future market:
Spot Market : Here the currency is bought and sold according to the current price. This is resolved by supply and demand which is widely influenced by current interest rates, financial performance, response towards political situations and awareness of future performances.
Futures and Forwards : these two markets do not actually trade in actual currencies. Instead they focus on contracts which represent claims to a certain currency type; a specific price per unit and a future date of settlement.
It is undeniable that the Forex trading market has dramatically changed in terms of accessibility in the last 5-10 years. No longer are brokers the sole voice and representatives for traders wishing to make a profit in this niche. Software is now being developed which will enable traders to trade independently from the comfort of their own home.
Remember if you’re new to FOREX to use one of the demo accounts to learn how that software works and familiarize yourself with the market. FOREX trading can involve significant financial risk even for experienced traders.
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