What is Forex Trading | How does Forex Trading Work

WHAT DOES FOREX TRADING MEAN?

Forex Trading or FX can define as a medium of Buyers and Sellers.

Both buyers and Sellers trade financial assets between each other at a specified price.

The individuals, small and large companies, commercial and central banks, convert one currency into another.

If anyone who travelled to another country really who made forex transactions, if he converted his local currency for that country’s money where he visited.

The question arises in mind that why a large number of people convert one currency to another, is that for making a huge profit if he knows the right trade conversion.

These massive conversions of currency pairs take place in the forex market for vast and volatile price movements.

For this conversion and unpredictability of financial assets’ trend make so attractive to many traders, they have both chances of high profit and losses for doing the conversion.

Forex Trading

Who trades forex and why? 

The virtual forex trading doesn’t take place in physical trade exchanges just like money or stock exchanges.

So when we need to buy & sell currencies, stocks, bonds, and commodities, then we have to go to the physical market.

And but in the OTC market mean a virtual market that only exchanges directly between two parties.

Through forex brokers because they give access to the interbank market.

All Central Banks of the world connected through a worldwide network called electronic communication Network(ECN) with four major forex trading centres in separate time zones.

These forex trading centres named Sydney, Tokyo, London, and New York, these centres, as mentioned earlier.

Not physically available, and they don’t have a central location; they only connected by central banks.

You can trade in the virtual forex market 24 hours a day only by the access of your forex brokers.

There are mostly three types of forex trading market:

Future market.

When you are going to trade means agree to buy or sell any financial assets at any fixed price with specifying a future date.

So you must write an agreement or promise like a written contract.

And a futures contract is legally unbreakable.

Forward market.

When you are going to trade or agree to buy or sell any financial assets with any fixed price without specifying a future date, then you must write a promise or written contract.

Spot market.

A spot trade and spot transaction both are nearly very same.

Financial assets like currencies, stocks, bonds, and commodities and their purchase and sales are very instant delivery on a specified spot date.

Who Trade Forex and Why

Base and Quote currency in Forex Trading?

If we are expressing about the currency pair of EUR/USD, so we say EUR is the base currency while USD is the quote currency.

What forex trading involves, selling one currency to buy another through the access of forex brokers.

If you are buying currency pair so know what is worth of 1 unit of base currency with the quote currency.

As one unit of the base currency of EUR is equal to 1.2956 USD.

Each currency in the pair list as a three-letter code, the two letters used for the region, and one stand for the money itself.

Base and Quote Currency

For example, we are planning to buy a currency pair of EUR/USD at the price of 1.2956.

Suddenly the rates increase from 1.2956 to 1.2990.

Then it means the euro is making worth more than quote currency of USD.

Or Suddenly drop the prices from 1.2956 to 1.2900.

And means euro losing its worth and USD dollar increase its worth.

When base currency like EUR increase its strength against the quote currency like USD, then you may buy the pair EUR/USD (going long).

When quote currency like USD increase its strength against the base currency like EUR, then you may sell the pair EUR/USD (going long).

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About Muhammad Shahid

My name is Muhammad Shahid, MBA in Finance from IBA, University of Sindh, Professional Forex Trader & Trainer, I have taught more than 850 Students throughout the Sindh.

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