Money is the one thing that people would die for when deprived of fortuitous situations to earn a fabulous life. But, the approach towards this urge has changed since the launch of various trading options. People have found effective methods to make a buck from the market offering buying and selling platforms. One of the most popular trading options today is forex. It gradually seeped into the minds of millions of people across the globe, pushing them further to explore the potential of the market.
Foreign exchange is the network of sellers and buyers, helping you transfer currency between each other. If you have traveled abroad and exchanged your country’s currency for the local currency, you have also been a part of the forex market with that transaction. Although a lot of the exchanges are done for practical purposes, many also have profit attached to them. The price movements in the market will determine the amount you receive for every transaction. Let us look at forex trading in detail.
The Working of The Currency Market
Forex trading does not take place on an exchange; instead, the transaction is made over the counter directly between two parties. A global network of banks controls the whole system, with the four major trading centers operating in New York, Sydney, London, and Tokyo. Unlike the other trading options, you can easily access these platforms at any time of the day since no central location exists for the market. The three different types of the forex market are:
· Forward Forex Market
This works on the basis of a contract that is agreed upon by the buyer and seller for a set amount of money, which has to be settled on or before the fixed date in the desired currency.
· Spot Forex Market
All forms of exchange that take place physically at the point of trade within a short period of time falls under the spot forex market.
· Future Forex Market
The future forex market also has a legally binding contract upon which both the parties have agreed to exchange currency at a price within a set date in the future.
Forex works through pairs with two currencies in their abbreviated forms, which are three-letter codes that stand for the region and the name of the currency. You must always look for the value of this pair before planning to buy or sell a particular currency against the other. The first one listed in the pair is known as the base currency, and the other is called a quote currency. Its price is determined as the units of the quote currency you need to spent to buy the base currency. Pairs are most commonly known as exotics, regional pairs, minor pairs, and major pairs.
The difference between the prices of buying and selling is called the spread, which is usually the payment of the broker. You can always gain an advantage in the market by depositing a small amount without having to expose your account to the large sums of a particular currency. Always look for the factors that move the market in order to make timely decisions.