What is Forex Trading and How Does it Work

What is forex trading?

Forex, or foreign exchange, can be explained as a network of buyers and sellers, who transfer currency between each other at an agreed price. it’s the suggests that by which people, companies and central banks convert one currency into another – if you have ever traveled abroad, then it’s likely you have made a forex transaction.

While a lot of foreign exchange is done for practical purposes, the vast majority of currency conversion is undertaken to earn a profit. the amount of currency converted every day can make price movements of some currencies extremely volatile. it’s this volatility that can make forex therefore attractive to traders: bringing about a greater chance of high profits, while also increasing the risk.

How do currency markets work?

Unlike shares or commodities, forex trading does not take place on exchanges but directly between two parties, in an over-the-counter (OTC) market. The forex market is run by a global network of banks, spread across four major forex trading centers in different time zones: London, New York, Sydney, and Tokyo. because there’s no central location, you’ll be able to trade forex 24 hours a day.

There are 3 different types of forex market:

• Spot forex market: the physical exchange of a currency pair, which takes place at the exact point the trade is settled – that is ‘on the spot’ – or within a brief amount of your time

• Forward forex market: a contract is agreed to buy or sell a collection amount of a currency at a specified value, to be settled at a set date within the future or at intervals a variety of future dates

• Future forex market: a contract is agreed to buy or sell a set amount of a given currency at a collection value and date within the future.

Not like forwards, a futures contract is legally binding. Most traders speculating on forex prices will not attempt to take delivery of the currency itself; instead, they create exchange rate predictions to require advantage of value movements within the market.

 

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