You must have heard about forex trading and have wondered what is forex trading. Today we will discuss about online forex trading and discuss about working of forex market and some forex trading strategies.
Forex is made up of two words Foreign and Exchange. So, forex trading is characterized by trading in foreign currencies. Trading between two currencies or exchanging on currency for another currency is forex trading. Forex trading is very important for practical purposes. However, forex traders trade forex with the aim of extracting profits from the market. There are lot of trades in the forex market daily which play a key role in the forex price movements, making the forex market volatile. Investors try to make the most out of these price movements in order to earn profits.
Let us now take a detailed look at online forex trading and also find out about the working of the forex market in India.
What is Forex Trading
Forex trading is the trading of currencies between a network of buyers and sellers spread across the world for an agreed price. Any transaction from one currency to another is a type of forex trading. Forex trading is carried out extensively by banks, corporate and multi-national companies and individuals for practical purposes and also to earn some profits from the trade.
Any transaction which involves conversion of one currency to another is a type of forex trading. For example, when you travel toa foreign country, you get your currency exchanged into the currency of the destination country. This is also a type of forex transaction. When you travel back, you again convert the leftover cash to your country’s currency. Now during this span, there would have been some movements in the exchange rate of currency which will lead to a profit or loss for you in the entire transaction.
What are Currency Pairs
Currencies are traded in the form of pairs. For example, if you are exchanging Euros for USD, it will be the EUR/USD pair. Currency pairs are divided into the following categories for keeping things ordered. These categories include:
Major Pairs – The major pairs or commonly traded currency pairs which account for 80% of global forex transactions include EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CAD and USD/CHF
Minor pairs – These currency pairs are not traded extensively and include major currencies against each other instead of the USD. This includes EUR/CHF, EUR/GBP and GBP/JPY.
Exotic pairs – These include currencies from growing or small economies against a major currency. Examples are GBP/MXN, USD/PLN, EUR/CZK etc.
Regional Pairs – These currency pairs are classified by region like Australasia, Scandinavia etc. Examples include AUD/NZD, EUR/NOK etc.
How does Forex Market Works
Forex market is an entirely OTC (Over the Counter) market and has no bourses or exchanges involved. The transactions take place directly between two parties through online forex trading. The market is managed and run by a worldwide network of banks. These banks are spread across four major forex trading centers from different time zones. These centers include London, Sydney, New York and Tokyo. Since forex trading is not centralized to a single time zone, you can do online forex trading 24 hours a day.
Forex markets can further be classified into three categories – Spot Forex Market, Forward Forex Market and Future Forex Market.
Since Forex Market is a global market and works round the clock, it serves transactions worth billions every day. Considering such high volume, the market is prone to volatility which provides various opportunities to investors but raises the level of risk as well. If you wish to trade in Forex and want research-based recommendations for Forex trading, you can get in touch with an investment advisor.
