Forex Trading – An Introduction

Forex Trading – An Introduction

The foreign exchange market is an online interbank market for the trading of different currencies. This market effectively determines international exchange rates for each currency. It includes all areas of trading, buying and selling currencies at either current or pre determined values. It is considered as a fundamental and important factor in the Forex market, which influences the behavior of the currencies of different countries.

In Forex there are three different types of exchanges: Forex spot, Forex forward and Forex swap. The most commonly traded currency is the U.S. dollar followed by the Japanese yen, Euro, Swiss franc and British pound. Forex spot trades take place in major currency pairs such as: the EUR/USD, USD/JPY, GBP/USD, USD/EUD and GBP/USD. These trades are executed at present times through electronic systems and are based on speculations only. In Forex, the most familiar term is “spot” because the trades take place real time, however at the Forex market, there is no physical product that is delivered, there are no certificates and no exchange between actual parties.

The second type of Forex market, which is the Forex futures market, is a complex interbank market using contracts for future purchases or sales of a Forex commodity. Futures contracts are traded between two or more participants who agree to buy or sell a specific commodity at a specific date in the future. There are also Forex swap and Forex forward contracts, which are essentially swap agreements between two parties. In Forex, the trades take place at present times through electronic systems and are based on speculations only.

There are a number of benefits that make Forex trading attractive compared to other trading options. First, the risks are limited and the profit potential is high. It is also a leveraged financial product, that is why traders have access to significant risks and significant profits when they execute their trades. The Forex market is not easily touched by fundamental factors such as interest rates, consumer prices, and other outside forces. The trading takes place at the level of the market maker, and therefore trading on behalf of large institutional players and/or banks is possible.

Forex trading is based on the principle of the Forex day forex market, which is the buying and selling of currencies of various countries at the opening and closing of the financial day. As these currencies are always traded in pairs, there is the potential for arbitrage, price fluctuations, counterbalancing, price gaps and other types of discrepancies in price and supply. This is because when one country has low interest rates, there would naturally be high demand for its currency, and vice versa. The central bank of a country can intervene in the Forex market if it sees that a currency’s value is declining due to factors beyond its control, and use its printing capabilities to reverse the trend and create an imbalance in the supply and demand forces, causing currency prices to fluctuate and creating opportunities for arbitrage profits.

To get a better understanding of how Forex works, the term “Fibonacci ratios” should be a word of reference that one learnt in his or her physics class. It is the formula used to identify which is the higher value of a currency pair at a certain time. Currencies can be traded on US Dollar, British Pound, Japanese Yen, Euro, Australian Dollar and Chinese Yuan. When trading on major currencies, some common strategies in Forex include Forex scalping and mini Forex campaigns.

Brittany Walton

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