The forex market is one of the most popular and largest financial markets in the world. It has seen tremendous growth in the last few years as a majority of traditional stock traders have shifted their interests toward this lucrative market.
The best thing about the market is that it works for 24 hours and allows the investors to execute their trade any time of the day. The currencies even could be used for hedging and speculating.
As the market is the largest, it includes banks, individuals, companies, financial institutions, brokers, and many other traders and investors.
With the highest market turnover of $5.2 trillion daily, the market is highly active. To understand more about this lucrative financial market, read this article till the end.
What Is Forex Market?
The foreign exchange or Forex market allows traders to trade currencies; they buy and sell the currencies in the market to earn profits.
A single market exchange does not dominate the market but also has a global network of computers connecting global traders and brokers.
The fx market operates on two levels: the interbank and over-the-counter markets. The interbank is a large bank that trades currencies via hedging and other modes on behalf of its clients.
On the other hand, over-the-counter (OTC) refers to trading through online platforms and brokers. On the other hand, a forex broker allows traders to open a trading account to execute trades.
In addition, the brokers assist the traders with their investments by offering advanced trading platforms, tools, and analysis. Thus, advancing them with the future fluctuations and having a profitable investment.
With the forex trading tools, traders can achieve the goals set and double their investments. This will guide them in managing the market risks and avoiding unnecessary market changes.
Types Of Forex Markets:
The fx market has been divided into three types of markets. Traders can use the markets according to their trading requirements.
The currencies are highly liquid and therefore require traders a lot of attention to never miss any market opportunity. So, let’s understand the forex market types for various investments:
The spot market is the immediate market where trade parties exchange the currency pairs within a short time period.
The two trade parties of the market decide the currency pair and its value. The price on which the currencies are traded is called the spot price, and the day is the spot date.
The main participants of the spot market are central banks, investments, brokers and commercial, etc. The banks here trade for themselves and for their clients as well.
The futures market is the buying and selling of forex currency pairs for a specific date and price for a time period.
Traders in advance decide the price and date on which they execute the trade. The market is legally binding over the parties and does not allow them to have a range of dates for the trade.
It necessarily carries out the trade on the specified date and time with no other range of dates. Therefore, the futures market is a highly preferred option among market traders.
The forward market also allows the buying and selling of currency pairs for a specific price and date for a time period.
As traders have everything decided in advance for the trade execution, it differs from the futures market as traders can have a range of dates for forwarding contracts.
However, it is not a legally binding contract and gives traders the freedom to choose other dates to trade.
That’s it! Hope you have fully understood the forex market and how does it work? However, to become a successful forex trader, you’ll need to put all your knowledge and skills to work.
Start practicing trading forex through a free demo account offered by one of the best forex brokers – ABInvesting.