Ever wondered how people from different countries do business considering all the different currencies? In short, they need to participate in the foreign exchange market. But what exactly is that and how do you go about trading in such markets? In the paragraphs that follow we’ll teach you the basics of forex trading!
The forex market is the biggest financial market there is, even compared to the stock market, which a lot of people consider to be the largest in the world. The average amount that’s being traded on the forex market each day is around $2,000 billion! But apart from this impressive number, there are plenty of other important things that make this market one of a kind.
Unlike other markets, the forex market has no central place designated for trading. All trading is done electronically, which means it can be conducted from any place in the world and at any time of day. There are a couple of financial centers responsible for making this possible, the major ones being located in New York, Paris, Zurich, Frankfurt, Hong Kong, Singapore, Tokyo and Sidney. The continuity of service is made possible by the fact that, for instance, when trading ends in the US, it starts in Japan. But this still doesn’t answer our question about the nature of forex trading?
So what exactly is forex trading? There are three ways in which it can be done and we’ll need to explain all three of them. They’re called the futures, forwards and spot markets. The spot market is the place to go if you want to buy or sell a currency at its current price. The latter, of course, depends on supply and demand. The forwards and futures markets are the places where you can go if you don’t have an actual currency to trade. They are the markets for special kinds of contracts, those involving claims to certain currency types.
In short, forex trading is currency trading which can be done for the purposes of exchanging currencies and making profits off a certain currency’s current price. It’s an international market that’s the most liquid of them all!