Foreign exchange trading has changed in recent years. In the past, people used to think of it as something useful when traveling abroad, in a country with a different currency. However, nowadays foreign exchange trading has evolved into an investment trading, most commonly known as Forex.
If you are at the beginning of your trading career, you might be interested in discovering what Forex is and how exactly it works. In this article, we are going to give you a comprehensive explanation, so that you can figure out if Forex trading is the one you should explore.
What is Forex?
Forex trading is the process of exchanging one currency for another. This exchange takes place for two main reasons. First of all, people who aren’t occupied in trading want to exchange currency for practical reasons, for example for traveling. The second one is for earning profit and in this case Forex is more of an investment trading.
Right now, the Forex market is among the largest markets in the world. Due to the vast amount of transactions, the exchange rate is constantly fluctuating. For this reason, traders need to keep a close eye on these fluctuations to spot the right moment to perform their trade.
In further detail, the Forex market is divided into three categories:
- The Spot Forex Market – this refers to the physical exchange that takes place at a certain spot or a short amount of time.
- The Future Forex Market – this refers to a contract that agrees to sell and buy currency at a fixed price in the future.
- The Forward Forex Market – this refers to the agreement to sell and buy currency at an agreed price during a future period.
What Influences the Forex Market?
As you have noticed, a trader wanting to invest in Forex needs to stay up to date to the movements of the market to a make profit. The prices in the Forex market are influenced by supply and demand, as is the norm. However, the fluctuations are so frequent that a trader cannot follow them. Instead, a trader can use the following things to make educated predictions.
Global Affairs – global affairs can have a huge impact on the price of a currency. Economies that are thriving lead to stronger currencies.
Central Banks – the supply of the currency is controlled by the central banks, so any change in their policy will affect its price.
How does Forex Work?
Forex trading in its essence works easily. The trader simultaneously buys a currency and sells another one. In the past, these transactions mainly occurred via a Forex broker. In recent years, however, Forex trading takes the form of CFD trading, which stands for Contract for Difference trading. Through this type of trading, traders don’t take ownership of the asset, which is the currency. This enables them to speculate on the way the market is going to move and act quickly upon figuring it out.
Forex trading holds immense potential for future traders. However, you will need plenty of insight to be successful. Request more information on GetForexOnline.com