How forex trading works
The process of buying and selling as well as the exchange of the currencies of
different countries with each other at a predetermined price is known as
This trading is done in a forex market which includes a network of sellers
and buyers of foreign currencies.
They transfer these currencies at an agreed price between them.
In this market, one currency can be converted into another currency
through central banks,
companies as well as individuals. You may have to make a forex
transaction if you have to travel abroad.
Purpose of forex trading
Forex trading is done in forex markets all over the world for
Along with traveling abroad, earning profits can also be one
of the reasons for which most of the currencies are exchanged with others.
Forex market is very volatile as the rate of exchange of one currency with the
other depends upon various factors including the amount of currency
to be exchanged etc.
This volatility in the forex market attracts people to invest in hot forex trades
to earn high profits.
increases the risk of losing
your hard-earned money.
Working of forex trading
Trading in the forex market does not happen at a particular place like
that of commodities and shares etc.
This trading is performed in an over-the-counter market between two
A global network of
banks spread over four time zones operate the forex market through
different forex trading centers in New York,
London, Tokyo, and Sydney.
You can trade in the Forex market round the clock as this market
does not have any central location.
Types of the forex market
There are three different types of forex market:
Spot forex market: In this market, the currencies are exchanged physically
and the trade is settled
at the spot or within a limited time.
Forward forex market: In this market, a particular amount of a currency
is agreed to sell or buy in the
future at a particular price and the trade is settled in the future as
agreed in the contact.
Future forex market: In this market, a contract to buy or sell a
given amount of currency is
agreed upon for a future date at a set price. This contract has
a legal binding on both the parties.
Most forex traders do not take physical delivery of the currency as
they speculate on their prices.
Instead of taking delivery of the currency they predict the rate of
exchange of that currency on the
basis of forex news and use the movement of price in the market
to make money.
In the forex market, foreign
currencies are traded in pairs.
The first currency listed in the pair is known as the base
currency and the second one is known as the quote currency.
You can sell one currency against the other currency in the pair.
you are trading British pound with US dollar then you will be
You will have to pay 1.35361 US dollars to buy one British
pound if the exchange rate is 1.35361.
Written By : YOUSSEF J A ALMEER
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