Forex Trading

Forex Trading

The foreign exchange or forex market is an over-the Counter market for the foreign trading of various currencies. This marketplace normally determines international exchange rates for each currency. It comprises all facets of purchasing, selling and trading currencies in current or predicted prices. Forex market makers and dealers then decide on the most appropriate exchange rate and help in stabilizing the currency values. This transaction of currency values is usually carried out in pairs such as USD/JPY, USD/CHF, GBP/USD etc.

There are two types of foreign exchange trading:’Spot’ and ‘Dollars’ forex. In spot forex, as the name indicates, one buys a currency that is expected to go up in value in the very near future. Most often the trader purchases the currency using a Forex brokerage service and then sells it when the value goes up. A lot of money is made by the foreign currency trading through this method. However, since the price is not decided in a precise manner, more often the trader ends up losing money. More importantly, the prices of the traded currencies do not move in an absolute way.

‘Dollars’ method on the other hand is the place where money is made more efficiently and with little effort. The ‘Dollars’ method on the foreign exchange deals with the foreign currencies only. These currencies are usually traded more than the spot currencies. Unlike in the case of spot trades, the buyers and sellers decide on the amount they wish to trade. It can be in the form of cash, share or any other asset.

Interest rates, inflation and financial crises are the major factors that affect the stability of the Forex markets. Volatility is the measure of the speed, the change and the direction of the market movements. ‘Rising volatility’ means that the rate of currency against another goes up and down; ‘falling volatility’ means that it goes down and up. An example of falling volatility is that when the interest rates of a country go up, the other country’s currency drops. Whereas, if the interest rates drop, the other currency goes up.

Forex traders buy and sell currencies on the Forex futures markets. It differs from the conventional stock market in the fact that there are no stocks, bonds or commodities for sale in the Forex futures markets. There is only trading currency. In the Forex trading currencies, the trader buys them when they are low and sells them when they are high.

Spot trading in the Foreign exchange market is also referred to as spot market. It deals with the purchase and sale of one currency in the expectation that its value will go up. In the interest of clarity, ‘Forex’ in the spot market refers to the spot Forex market, and ‘FX’ is usually used to refer to foreign currency exchange. A lot of trading happens between the United States Dollar and the British Pound Sterling, the Euro and the Japanese Yen, and the Australian Dollar and the Swiss Franc.