How Forex Market and Trading Works

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How Forex Market and Trading Works

What Is Forex?

Forex, also known as FX, is the acronym for foreign exchange. Forex market is the place where buyers and sellers gather to trade currencies 24 hours a day and 5 days a week (some markets are open on Saturdays). Forex trading refers to trading currencies in the Forex market. Forex trading offers the opportunity to make substantial money or huge income through an online Forex trading account. You can trade from anywhere in the world as long as you have a computer with an Internet access with the help of a click of a mouse through a live online Forex trading account.

Factors That Influence the Price of a Currency

Currencies are bought and sold based on demand for a particular currency. The price is determined by the supply and demand factor, interest rates, consumers’ sentiments, economic performance, geopolitical conditions in certain countries, and other factors. The price can also be affected if a particular currency is overbought or oversold. It is crucial for you to educate yourself about, and stay up to date on various aspects of world economy, geopolitical conditions around the world, and financial policies of major economies across the globe. It is quite easy to get yourself familiarized with all these subjects as the Internet is full of helpful information about Forex trading online.

Different Ways to Trade Currencies in the Forex Market

  • The Spot Market
  • The Forwards Market
  • The Futures Market

The spot market is the largest financial market around where currencies are traded. The spot market is often interchangeably used for Forex market. The liquidity in the spot market is huge. When you trade currencies in the spot market online, you buy or sell currencies based on the market or current price of the given currencies. The forwards and futures market are more popular with companies. Usually large companies use these markets in order to hedge their trading risks against future foreign exchange fluctuations. When you trade in these markets, you must liquidate, i.e. settle, your trades or positions before a specific settlement date or else the positions will be settled on the settlement date.

Both the forwards and futures market can offer protection against risk when trading currencies. In the spot market, a deal is settled on the spot in which one party delivers an agreed-upon currency amount to the other party and receives a specific amount of another currency at an agreed-upon exchange rate value. The settlement is in cash when trading currencies in the spot market. Contracts in currencies can also be bought and sold before they expire in the forwards and the futures markets.

Trading Sessions

Forex market is open 24 hours a day and 5 days a week (some markets are also open on Saturdays). Since different countries are located in different time zones, when one market session closes, another opens. Also, some trading sessions overlap, which means one market session shares some time with another market. When NY (New York) session ends, Sydney market session begins. When Tokyo session ends, London session begins. These sessions overlap one another. So, Forex market can be extremely active at any time of the day and the night.

Final Words

When it comes to opening a Forex trading account, it is important that you choose a professional, reliable and reputable Forex brokerage company or firm to open the trading account with. Forex trading is all about taking informed and calculated decision. You need to learn the basics of Forex market and trading and understand how the fundamental and technical factors move the Forex market. If you want to take challenge and earn great money online then Forex trading is a great option for you.

 

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