The foreign exchange market means where all type of currencies across the world are traded. The forex market is the biggest and most liquid market in the world with an average daily trading volume more than $5 trillion. Currencies are an important part for most of the people around the world because the currencies are required to be exchanged in the sense to do foreign trade and to do business.
Many of the foreign exchange is done for practical purposes, the majority of the trade for currency conversion is undertaken for the motive of earning a profit. The total amount of currency that is converted daily can make price movements of certain currencies that are extremely volatile due to trading of large volumes. It is the volatility that makes forex attractive for the traders because it brings a greater amount of chances for high profits and thus it increases the risk.
How to Trade in Forex?
- Choose a currency pair to trade with.
- Decide the type of the forex trade
- Decide whether to buy or sell
- Add different orders
- Analysis and close the trade
- Closing the trade
How do Forex markets work?
As shares or commodity trading in India is done in the stock exchange but the forex markets do not trade on the stock market and it is traded on the Over-the-Counter (OTC) market. The forex market is executed in a global network of banks, spread across the major forex trading centres in different time zones: London, New York, Sydney and Tokyo, there is no central location and forex can be traded 24 hours a day. There are three types of forex market:
In this market, there is an exchange of physical currency pair and this transaction takes place at the exact point in time that is “on the spot” or with a short time frame. With the invention of electronic trading and number’s of forex brokers, the spot market has almost fallen with this invention and most of the traders have shifted to forward and futures market.
Futures are traded on the stock exchange and in this the currencies, there is a contract which is agreed upon to buy or sell a set amount of a given currency at a pre-determined price and date in the future. In this market there is no customization is available. The exchange acts as a counter party to the trader, providing a guarantee that the trader will be safe for the investment also for the settlement.
This market executes in the over-the-counter and this there is exactly same defined for the prices, settlement as there is in the futures market. In this market, there is customization available for the trader to choose. Unlike the futures market, the forward market is not secured by the stock exchange.
What are the reasons for moving the Forex market?
- Central Banks
- News Reports
- Market Sentiment
- Economic Data
- Credit Ratings
Pros and Cons of Trading in Forex
Pros: – This market is termed as the largest market in the context of daily trading volume in the world. Due to this, it makes it easier to enter and exit a position in any of the currencies that are spread across the world in the market. The forex market can trade throughout the day 24 hours a day and five days a week.
Cons: – In forex trading, there is a high amount of leverage offered and due to this sometimes it can be challenging for the trader and can lose all its capital in just one wrong move. Many extreme amounts of leverage led to many of the dealers become insolvent. Trading currencies required an understanding of economic fundamentals and indicators.
Nifty Trading Academy (NTA) provides live training and trading learning session to the individuals who are interested in the stock market and are more focused on the technical analysis for the stocks and specialized in intraday trading. We had different kinds of courses that are mentioned on our website. Through this blog, you will get in-depth knowledge about what is forex trading, how to trade forex & pros and cons of trading forex. If in case, you have some doubts or queries regarding the blog or about the courses you can call or email us. Read a more interesting blog from Nifty Trading Academy.