Traveling to an international destination requires a lot of planning and preparations, like one needs to do the bookings, prepare a travel plan as per the available budget and get the currency exchanged into the appropriate format. But, have you ever wondered what this foreign exchange can be chosen as a profession to make a good capital out of it?
Well, this article is meant to introduce you to one of the most actively traded markets of all times, “Forex trading”. Let’s have a look to learn all about Forex trading!
What is Forex-trading?
Forex is an abbreviation for the “Foreign Exchange”. It is a platform where the buyers and sellers of a particular currency make a deal in real-time. While for the international travelers, forex is a necessity, for the day-traders this is an opportunity to make good revenue out of it. Forex trading is all possible due to the volatility of the currencies. At times the prices are low, which is a good time to buy and at other times, the prices jump which is the perfect time to sell.
Therefore, there are chances of making a good profit out of it and at the same time, there are higher levels of risks associated with these exchanges.
Working of currency markets
There is one major difference between the forex trading and the share-marketing. For the share-trading, we need to have an exchange portal, while for the forex-trading we do not need any such medium for exchange. A forex trading can take place directly between the buyers and the sellers in an over-the-counter (OTC) market.
Broadly there are four major forex trading centres in the world, namely Tokyo, London, New York and Sydney. Since all of these four are having different time zones, one can trade forex any time of the day.
Both of these currencies that are meant for exchange makes a currency pair. For example, X/Y makes a pair in which currency “X” and currency “Y” will be exchanged at the agreed price.
Types of Forex markets
The forex market is broadly divided into three major types that are as discussed herewith:-
Spot forex market: As the name suggests “Spot-forex”, such trades are accomplished within a shorter period of time, i.e. ‘on the spot’.
Forward forex market: This mode of forex trading are well planned. Both the buyer and the seller agree to a particular price, the particular time and the particular date on which they wish to accomplish the trade.
Future forex market: Similar to the “Forward forex market”, the trade is agreed to a particular date, price and time. Just the difference is that it is a futures contract that is legally bound.
How does forex trading work?
In order to understand the working of Forex, let’s consider a simple example that is as stated herewith:-
Suppose, one day you went into the market to buy mangoes and there is a single seller for the same. Now you and the seller will make a deal and get the things done at the best suitable price that will be good for both of you.
Another day you again go to the same market to buy mangoes, but now there are two sellers for the same. This means that supply has increased, yet the demand is the same. In such a situation, the sellers will compete among themselves in order to offer you mangoes at a lower price, wishing that you buy it.
Now in a situation, when you go to the market to buy mangoes along with your friend and there is a single seller. In such a case, there is a higher demand for mangoes. Therefore, there are maximum chances that the seller offers the mangoes at a higher price, in a hope to make a higher profit from you.
The forex market works in a similar way, when the demand is more than supply then the prices goes up. While, when the demand is less than the supply then the price falls.
Expert’s Views on Forex trading
“Trading doesn’t just reveal your character, it also builds it if you stay in the game long enough.”― Yvan Byeajee, forex trader
“Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you.” — Larry Hite, fund manager
Conclusion
Therefore, forex trading can be an exciting option for those, who are looking for making some extra revenue by trading via an over-the-counter (OTC) market that connects buyers and sellers to one another.
Understanding the foreign exchange market and winning at trading forex online is an achievable goal if you get well educated and keep your head together while you’re learning. Practice on a forex trading demo first and start with small trading when you start using real money is the best way for forex trading.
