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What is Forex Trading

If you are more interested in Sensex and the market, you might be well known with the term Trading. Trading is the concept of buying and selling goods or exchange of goods between two parties. It will give an opportunity for the traders to represents their country. Trading is done with three types of exchanges and one of such exchanges is Forex trading.

So, what is Forex trading?

Forex trading is the exchange of currency which is due to different reasons. Here’s an example of currency exchange, Let’s say you are on a plan to visit your favourite country for a vacation. Right from booking a taxi to shopping you need money. But wait, Do you think the taxi driver or a shopkeeper will accept your native currency? Definitely Not. You need to exchange your native currency with the current currency. Currencies are in fact exchanged to foreign trade.

Forex market comprises of banks, companies, investment management, forums and retail brokers.  It is the largest market with $5 trillion transactions per day.

There is no special market to trade currencies, it is done electronically over the counter(OTC). The transactions are carried out between the partners through the computers. The trade market is open for 24hrs for 5 days a week. You can trade at any time of the day. Every individual currency varies, this variation in the currencies has led to trading and foreign exchange.

Banks conduct trading on behalf of their clients. You can also trade one currency for another for individual purposes as mentioned above.

Benefits of Forex trading

  • No commission or brokerage fees, they are separately rewarded with Spread( The difference in the buying(bid) and selling(ask) price is spread)
  • You can determine your lot size
  • Low transaction fees
  • It is a 24hr market
  • Nobody can control the market price
  • Leverage on your trade with your own price settings and indicators
  • Highly profitable
  • Low entry fee, you will need a minimum of $25 deposit

As forex trading is remunerative, You can definitely give it a try. Want to trade?

Here’s a step by step guide to perform forex trading,

  • First thing’s first, Create a trading platform
  • Choose a pair of currency that you want to trade 
  • Select a time frame which starts from 15min
  • Each Candlestick stick( Candlesticks move when there is a price change) represents 15min
  • Add indicators. They will help you in the decision-making process
  • When you are sure that the price is stable, place the order
  • Set the levels of stop loss and make profits. This will prevent losses and brings you success in the long run
  • When your set with everything, confirm the order and wait for confirmation. 
  • Confirmation is very important as it is the ticket number which can be used as a reference 
  • Wait for your trade to earn profits. You can either accept the risk and continue with trading or you can also stop and get the profits earned
  • On completion of the trade, measure the trade and minimize the risk on your next trade 

You need to know about the spot, forward and futures markets.

Spot, forward and future market

Individuals perform forex trading in three ways. Spot, forward and future market. 

Spot marketing is the highest of the authority. It is the largest market and an asset as the forward and future market are based on the spot market. In the former days, the future market was paramount as it is most suitable for individual investors who are looking for longterm investment. Revolution in technology has led to the development of electronic trading.

Electronic trading and brokerages spot market are even more preferred by the investors. When people have to trade they prefer only the spot market and so future and forward markets are used by companies to shield themselves with foreign risks.

A spot market is where currencies are bought and sold for the current price. The price changes depend on,

  • Supply and demand
  • Present interest rates
  • Economic performances
  • Future currency performance

Usually, the settlement is done in cash. The spot market is known as the “deals with transactions”.

After completion and confirmation of the trade. It actually, take two days to complete the transaction.

On the contrary, forward and the futures market doesn’t trade on cash. They deal in contracts and claims with a certain currency type.

The contracts are traded between two parties with an agreement and are bought and sold over the counter in the forward market. 

In the future market, the contracts are sold based on the standard size and settlement rate.

Future contracts are jotted with specific details such as,

  • Number of units traded
  • Delivery and settlement dates
  • Change in the price

The contracts are traded before they expire. As earlier discussed, the future and the forward markets offer protection against the risks that occur when the currencies are traded. 

Forex as hedge and Speculation

Companies in foreign countries are at stay due to the fluctuations in the currency value when they purchase a service. Foreign exchange markets provide a shield to their risks paving a way to complete the transaction.

Rate of interest, trade flow, economical strength affects the supply and demand that generates volatility in the trade flow.

There are even risks associated with Forex trading such as brokerage risks, sovereign risks, credit risks. You need to be careful while choosing a broker for your trading services. 

Conclusion

Like the adage, Right things happen at the right time with a little patience. The same goes for forex trading. With the profits, there are even risks associated with trading. The prospect of loss or profits, it all depends on you. You can end the trade when you get the desired profit.

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