Learn Forex Trading
The term Forex trading refers to currency trading. Currencies are traded in the foreign market. Currency is what the world works on and it is important to almost to every person in this world, and it needs to be exchanged. The world is a global village and you cannot survive alone in this world. You need to communicate and trade with the rest of the world and learn Forex trading.
Currency trading or Forex trading refers to the trading of money with a purpose of making profit. Forex market is currently the largest market in the world. It leaves behind even the stock market. Read on for more on ‘what is Forex’.
When the currency needs to be traded?
The currency trade occurs at the very moment when one country buys or sells anything from another country. For example, to trade a product from China, America will need to pay in the Chinese currency rather than American dollars. So here the American dollars will need to be traded for the Chinese currency. Currency trade has become the most important aspect of trade between the countries and cannot be ignored.
The forex market is the world’s largest market which has almost 3.2 trillion US dollars being traded every day.
How is it done?
Basically, all the Forex trading is done over the computer networks. There is no central market for Forex trading rather it is all done electronically using the computer networks. The exchange is done electronically between all the traders all around the world.
This market is open for five and half days a week and for 24 hours during the working days. The major financial traders’ markets are in Paris New York, Tokyo, Frankfurt, London, Singapore, Zurich, and Hong Kong, and Sydney. The market is up and active in all time zones which basically means that it never sleeps. When it sleeps in one country it is active in the other country with another time zone. Therefore, it is constantly changing and the traders need to keep an eye on every second because things can change drastically within a second.
This market can be a nightmare for the traders.
The process of forex trading
There are basically three ways that the foreign exchange companies follow for currency trading.
- The spot market
- The futures market
- The forwards market
The futures and the forwards market are based in the spot market, which is mainly why the spot market has become the biggest market ever to exist.
To define it in short words, it is basically the market where the currencies are traded based on the current prices. The price basically depends on the factors such as the ongoing interest rates, the political situations, the economic situation of the country and also the future observation about the performance of the currency, which basically means an idea about how tough competition a currency can give to other currencies.
When both the traders agree on the conditions, the deal is finalized known as the spot deal. When the deal is signed the agreed upon quantity of currencies is traded between the parties, which means that one party will give a particular amount of currency in exchange of the currency from the other party. The prices are agreed upon as per the contract.
After all the paper work has been done the transaction is done in cash. This process takes about two days for all the matters to settle and for the final transaction to be made.
The forward and the futures market
The forward and the futures market are a bit different from the spot market in a way that they don’t really trade actual currencies, rather they deal with the contracts that put claim on a certain currency, define a specific price and specify a date for the settlement between the parties.
The forwards market deals with the selling and buying of contracts over-the-counter(OTC), meaning electronically, between the traders. The agreement is made by the traders themselves.
On the other hand, the futures market deals with the buying and selling of the futures contracts which are based upon a settlement date and a standard size on public commodities markets, Chicago Mercantile Exchange is an example of such a market. Through the process to learn Forex trading you can apply the principles to other types of training. We will cover these in more detail on other pages.
The futures contract has all the details about the settlement being made. These details include the prices on which the trade is being done, the date of the settlement, how many units are being traded, and the conditions that cannot be compromised.
Both, the forwards contract and the futures contract, are equally binding and important. The settlement is done in cash if the contract is not met on its due date. The contracts can be bought and sold before their expiry date.
Both the markets reduce the risks of foreign exchange. They can provide protection against the fluctuating prices and conditions of the forex market.
The importance of spot market
Previously, the futures market was mostly used for currency trading. However with the modern invention of computers and the huge networks that they provide the spot market replaces the futures market. With computers also appeared many forex brokers who made this market highly active and hence the futures market was left behind. The futures and the forwards market are now mostly used by the companies who are at a risk of the due dates of the contracts.
So now when you hear someone mention the forex market, they are most probably referring to the spot market.
Are you good enough for this market?
Currency trading is a very risky business, it can give you nightmares. The risk of loss is high in this industry. So before investing into this market, you must know if you have the capability to bear a loss. The most important thing and advice for you is that you should never invest the money that you cannot afford to lose. Always keep something saved up for you, because you don’t know when you will need those savings to buy some food.
It’s all about being intelligent and a little lucky too.
What we do is to help you balance the risks and give you a full understanding of how to learn Forex trading and what Forex trading is all about.