Forex Trading Market-Learn the Fundamentals Easily
Forex market is an over-the-counter market where currencies are bought, sold and exchanged. It is the largest out of all the financial markets. It works 24 hours except for weekends. Banks are the main players in this market.
Here the currencies do not have absolute value. Instead, one currency is valued in terms of another. International trade cannot function without the forex market. Hence forex market helps in import and export of commodities.
The origin of the Forex market can be traced from the 1970s. Soon after the second world war, the countries wanted to improve their commercial and financial relations. The earlier forex market was based on the BrettonWoods system. This worked on the fixed exchange rate. The current system of floating exchange rate was adopted later.
There is always a speculation element based on the difference between two currency rates. Let us see the financial instruments that are used in the forex market:
Spot: It is a two-day delivery transaction. The settlement is on the next day. It has the shortest timeframe for settlement and uses cash rather than underlying contracts.
Forward: Here the buyer and seller agree to exchange currencies on a future date at a predetermined exchange rate. On that date, the transaction happens at the rate agreed earlier irrespective of the market rates on the transaction date.
Swap: Here currencies are exchanged for a fixed length of time. Both the parties to the transaction reverse it at a later date.
Futures: Future is a contract wherein a predetermined volume of currencies is exchanged at a future date. These are commonly used by MNCs to meet their payment obligations.
Option: It is a derivative wherein the owner of the currency has a right to affect the exchange transaction, but he does not have any obligation to effect the transaction.
The overall forex market needs extensive knowledge on the part of the member. Lack of knowledge will result in a loss. Forex market is a source of huge speculation. The element of risk makes the traders forego high-risk assets and opt for less risky ones. Most of them prefer USD as a safe haven. It needs years of learning and experience to trade in forex market. Even the most experience and prudent traders incur a loss. But those who do not have in-depth knowledge can also participate with the help of software like Qprofit system and earn a high income.