If you put it simply, Forex is the foreign exchange of currency where the seller sells a currency to the buyer at a price that has been agreed by both of the parties. In addition to that, it also forms the basics of the currency exchange which is very important when people from one country travel to the other. In other words, it’s the business of making money by the trade of money. The amount of money that is traded on the market exceeds that of the stock market and with high volatility and the $3 trillion being traded in a single day trade, it makes it one of the largest financial markets on the planet.
How does the market work:
If you have to buy the equity shares, that goes through an exchange where the transaction is recorded and registered. It has a record of the trade, but the forex is devoid of such centralization and the trade is taking place between the buyer and the seller. Though there is a role for the banks to play in terms of inflation and price fluctuations, the market doesn’t allow any financial institutions to dominate the space. That means even an individual trader has more than enough opportunity to aim for a higher profit. The time zones for the trade are London, Sydney, Tokyo, and New York.
What to keep in mind?
Before the money is placed in the market and currencies are bought, you must know what you require to do. The trade is based on the values of the base and quote currency. The initial task is to buy one of them and then sell the other when the time is right. The currency is denoted by the three-letters, the first two letters refer to the region and the last one is the currency. The investment is to be made when you believe that one currency will strengthen against the other, in the example, AUD/US, if the Australian Dollar rises against the US dollar, then the pair will be stringer and the Former will be more worth than the latter. When the base currency rises against the quote, you buy the pair, but if it’s the quite opposite, you sell it.
Most of the transactions take place in the US Dollar and more than 45% of this trade is carried out in the UK. The 65 pairs are divided into three categories – Major pairs, Minor and Exotics. Major pairs include USD/JPY, GBP/USD, USD/CAD, and USD/CHF. In minor pairs, EUR/GBP, EUR/CHF, and Exotics include USD/PLN and GBP/MXN.
Forex is a market that is high-liquid but high-risk. Many of the experts call it a favorable market for the beginner and before you decide to invest in the market, the need to research and make sure that you are aware of the various nuances, insights, and factors that can affect the patterns of the market is more imperative.