The Nuts and Bolts Forex Market
Do you know that you can trade different currencies and commodities in the forex market? Forex is known to be the biggest and the world’s most liquid today.
Lots of transactions involving trillions of dollars are performed in the forex market daily. One beautiful thing you need to know is that the market is not centralized; instead, it involves an electronic network of banks and traders.
In the forex market, lots of entities (from financial institutions to shareholders) have needs for currencies. These investors trade these currencies on the forex network so that they can relate to other orders from other individuals.
It’s essential to know that the forex market operates 24 hours a day, 5 days a week (except for holidays). Additionally, retailers in the forex market can trade currencies, but a profit or loss will be as a result of the difference in price that the currency pair was traded.
Currency Pairs & Quotes in The Forex Market
There are different trading pairs in the forex market, such as USD/CAD, EUR/USD, or USD/JPY. Furthermore, a forex quote is known to be the price of one currency in terms of the other currency. For instance, the amount of one Euro may cost $1.1404 when viewing the EUR/USD currency pair. Stockbrokers will quote two prices for a currency pair and get the spread between the two rates.
How Big Is the Forex Market?
In April 2016, forex trades averaged $5.1 trillion per day, according to the Bank of International Settlements. The forex market is enormous due to its trading volume. The forex markets have global financial centers in different places in the world; the major ones include Tokyo, London, Hongkong, etc.
Trading in The Forex Market
It is possible to buy and sell currencies and also 24 hours a day, five days a week across major financial centers in the world. The forex market can be accessed very quickly, and you don’t need the permission of anybody to trade currencies.
However, when trading in the forex market, you need to know that you are either buying or selling a particular currency to another currency. Trading doesn’t involve the physical exchange of commodities or currencies between two different parties.
Spot Market Deal
A spot market deal in forex is the timeframe for delivery which usually takes two business days, except the trade of USD/CAD, which takes only one business day. It is necessary also to know that currencies are exchanged only on the settlement date.
Forex Futures & Forwards
A forex futures contract is the agreement between two individuals to supply a defined amount of currency at a particular date in the future – often referred to as the expiry.
Forex futures can’t be negotiated, and they are traded on an exchange with a defined expiry date. On the other hand, a forex trade that is resolved for a date after the spot is known as “Forward.”
What Makes the Forex Market Different from Other Markets?
The forex market is different from other markets in the following ways:
- No restricted access: The forex market is self has no cut-off concerning when you need to trade or not. This is because the market is opened 24 hours a day, one can trade at ‘any time of day,’ with the exception weekends, or when no global financial center is open due to a holiday.
- Fees: The market is not centralized; hence, charges/fees differ. Some forex traders get lots of cash by increasing the spread on the currency pairs.
- Leverage: You can leverage in the forex market up to 50:1 in the United States. This implies that a trader can get an account for $2,000 and trade as much $100,000 in currency.