What Is Forex Trading
In order to understand the meaning of forex trading, you will have to know the meaning of forex and trading.
The meaning of Forex is foreign exchange and trading means buying and selling a commodity.
So forex trading means buying and selling foreign currency at a given price.
The price of the transfer of currencies should be mutually agreed by the parties, the seller and the buyer.
In other words, companies, banks, as well as individuals trade forex to convert 1 currency into the other.
Usually, such transactions of foreign currencies are done while traveling to some other country.
Why forex trading is done?
Most of the forex trading is done mainly for the purpose of making some money.
The price of certain currencies, which are usually converted while trading forex in the markets every day,
is extremely unstable or volatile.
Most of the forex traders are attracted to forex trading mainly due to this volatility as it increases the chances
not only for earning profits but also to bear losses.
It is very true that foreign exchanges done for practical and real purposes around the around.
However, at the same time, massive numbers of foreign exchange trading done daily with a simple aim to make a profit.
Millions of traders just try to cash in the fluctuation in the price of a currency against another currency. In trading terms,
price fluctuation is called as volatility and makes the currency market lucrative for traders who always stay in a hunt make some quick bucks.
Working of forex trading
Forex trading is not done at a specific place like the trading of commodities and stocks.
It is normally done in over-the-counter markets where two parties negotiate the deal directly.
A network of banks is divided,
on the basis of different time zones, into four major centers of forex trading including New York, London,
Tokyo and Sydney where trading signals are analyzed to continue trading round the clock.
There’s no central market to control these four zones.
Today most of the traders trade FX online to save their time and efforts.
Types of forex markets
Forex trading is done in
three types of markets like:
Spot market :
Where a currency pair is physically exchanged and the trade usually is
settled within a short time period on the spot.
Forward market :
Where a contract generally is agreed upon between the parties to sell or
buy a given amount of currency at a particular
price and at a particular date or a range of dates in the future.
Future market :
Though this market works like the forward market but the difference is that in this market the contract binds the parties legally.
Written By : YOUSSEF J A ALMEER
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