What is Forex Trading? - TNT Magazine
Diving into the mechanism of Forex Trading
Forex Trading has grown immensely popular because of its flexibility and profitability. It attracts traders to step into the world of Forex trading every day.
The Age of the Internet took the world in a storm and changed it forever. The domain of international trade was no different in the face of this change. Since the 2000s, Forex Trading, or Foreign Exchange trading, has faced a massive boom across the global trading centers. It invited more investors and trading companies and grew as an independent dominion. In April 2019, the Forex trading market witnessed a record high of $ 6.6 trillion in Forex Trade volume. Presently, the Forex Trading market has evolved into a self-sufficient organism containing traders, investors, and currency pairs. The Bank for International Settlements supported this claim.
What is Forex Trading?
Forex Trading, also known as Foreign Exchange trading, refers to the exchange of foreign currency. Carrying out worldwide commerce, trade and finance over the internet requires money as a liquid asset. For international monetary transactions across the world, changing a currency into another currency is essential, and is done over foreign exchange. Foreign Exchange or Forex trading between two parties takes place over a global marketplace.
The Forex market comprises a network of Forex Traders and investors who participate in the exchange of currency pairs. This exchange of foreign currency is done at agreed values. Foreign Exchange is often dealt with by trading companies and banks. Traders in Forex markets invest available funds to hedge against the international currency exchange.
The value of the currency pairs is always in a state of flux, making the Forex market volatile and unpredictable. However, foreign exchange is essential for international commerce, and if done strategically, can prove to be profitable. Depending on currency pairs and their values and major geopolitical events, traders investing in Forex can earn a profit.
How does Forex Trading work?
Forex Trading does not take place in actual marketplaces. Instead, the Forex Trading market is an over the counter (OTC) online forum run by international banks and institutions. The Forex Trading market has major trading centers in Tokyo, Sydney, New York, and London depending on their time zones. Being in separate time zones also allows traders to engage in Forex trading throughout the day.
The Forex trading market considers all currency forms in the world and operates on the principles of supply and demand. However, the trades can experience influences from geopolitical and economic events, market sentiments, and central banks. The Forex market is volatile, and the transactions taking place are primarily based on predictions made previously.
The value of the currency pairs fluctuates, determining the profitability of a trade. Traders present in the Forex trading market operate by buying and selling currency pairs depending on their immediate market values. Traders can also participate with the help of broker services or trading platforms like MetaTrader 4. Traders can rely on trading strategies to maximize their profits or cut down losses while trading.
Though the Forex trading market is located virtually, it can be accessed in multiple ways for the convenience of traders. These different types of the Forex market include:
● Spot Forex market:
Spot Forex market is the only physical form of the Forex market, where currency pairs can be exchanged physically. As it takes place within a very short period, ‘on the spot,’ it is appropriately named.
● Future Forex market:
The future Forex market involves a legal agreement between the two parties. It is a legally binding contract that validates the set amount of currency pairs and conditions for the trade to take place at a particular time in the future.
● Forward Forex market:
The Forward Forex market involves trades to be made at a point of time in the future. Unlike the Future Forex market, though the currency amount and its price is agreed upon by the parties beforehand, a contract in the Forward Forex market is not legally binding.
Advantages of Forex Trading
Forex trading allows traders to enjoy a variety of benefits, including:
● Exposure to all kinds of currency active around the globe.
● The high liquidity of market assets ensures a continuous flow of trade at any point in time.
● Dealing with trades with high leverage is exceptionally profitable.
Forex trading has grown as an up-and-coming way of dealing with finances, encouraging new traders to step into the domain every day. It opens new opportunities for traders with good flexibility and profitability.