The forex is a 24 hour liquid cash market which is the largest financial market in the world. The forex is the currency market that influences the value of other currencies and has become the third largest financial market in the world after the stock exchange and commodity markets. The forex is an interdependent or over the counter market for the trading of foreign currencies. This market determines international exchange rates for each currency. It includes all aspects of purchasing, selling and trading currencies in current or predicted values.
Forex deals with trading two different pairs of currencies namely the US Dollar and the Eurozone Eurodollar. The main trading is done in US Dollar and the European Central Bank (ECB) currency. The trading takes place through trading exchanges where sellers offer to buy back the US Dollars from the buyers at a certain price. It is generally based on speculations. In forex, there is no physical commodity involved. There are various online tools available that help one to track the movement of the currencies and know the changing trend of the exchange rates.
Trading is done through two types of Forex markets namely the forwards and the backwards markets. In the forward market, one currency traded is bought at its base rate while another currency traded is sold. The profit in this case depends on the difference between the two closing prices. The trader makes profit when the difference increases.
On the other hand, in the back markets, commodities like currencies are bought or sold in anticipation of its increase in value. The major difference between the two is that in the forward market, the price is determined based on speculation while in the back markets, the prices are determined based on the actual production results. In the futures market, the prices are determined by the actual production results occurring in the future time frame.
A successful trader always knows the forex trends and the fluctuation in the forex markets. He can predict the rise and fall of the foreign currencies and therefore play the role of an aggregator or a provider of information to the traders who need it the most. He knows the direction of the market and thus plays the role of a broker who gives advice to the investors. These people can use the information provided by the forex brokers to make profitable transactions. Thus, it is in fact very useful for the foreign exchange trading traders as well.
As mentioned earlier, the forex trading is very useful for short term fluctuations in the values of currencies and hence one must always be ready to take up any situation that may arise. It is better to start small in the beginning and see how the business goes. You can also do some practice trades in the demo accounts to gain experience in the forex trading world.
