Forex, short for foreign exchange, is a web of buyers and sellers who exchange currency with each other at an acceptable price. Individuals, companies, and central banks use this method to convert one currency to another. Forex trading is a risk yet lucrative job and is very attractive to traders. This is because of the volatile nature of currency conversions and how they cause many prices to fluctuate, resulting in profits.
How do currency markets work?
Forex trading occurs in an over-the-counter (OTC) market directly between two parties. It is overseen by a network of banks spread across the world, with the four main trading centers being in New York, London, Tokyo, and Sydney. This allows an individual to trade forex at any time of the day, wherever they are, since there is no central location.
There are three types of forex markets:
- Spot forex market: the exchange of currencies takes place at the time, or within a short time, of settling the trade agreement.
- Forward forex market: An agreement is made to exchange a specific amount of currency at an agreed date.
- Future forex market: A legally binding contract is made to exchange currency at a specific date.
Benefits of Forex trading
Traders always look for ideal conditions to trade goods to make a profit. Many traders prefer to trade forex precisely because of the benefits it offers. Some of them are:
- Market hours:The forex market is open from Sunday 9 pm GMT to Friday 10 pm GMT. This is because transactions take place directly instead of utilizing a central exchange. Since it is a global market, you can trade forexwhenever convenient for you, as long as it is not after GMT 10 pm on Saturdays. It is important to note that many countries shift to daylight savings in April, October, and November so that the timings may vary accordingly.
- High liquidity: There are a lot of buyers and sellers looking to trade at all times. Thanks to this, transactions get completed quickly and efficiently, allowing traders to speculate on price movements or markets. A large amount of profit is also generated from these transactions.
- A large variety of pairs are available for trade: Individuals can trade various currency pairs depending on the situation of the economies and global events. For example, you can trade popular pairs like GBP/USD, JPY/USD, or rare ones like TRY/JPY or SGD/JPY.
What does forex trading have that stocks do not?
Stocks or forex trading ultimately depends on your preferred assets: shares or currencies. However, more often than not, traders prefer to deal with currencies. This is because of its market hours, higher liquidity, and higher volatility. The stock market tends to be more stable with a change over a larger period than currencies. Forex can change at the drop of a hat, making the process exciting and appealing to many.
Forex trading is an exciting field for the more adventurous people. It may not have the stability that stocks have, but it does have flexible market hours and other benefits that make it the go-to market for traders.