Forex simply is a foreign exchange market that is the place for trading global currency. This decentralized marketplace helps you to change the currency of a country to the currency of another. This exchange of currency could be for various reasons. The most popular reasons are trade and tourism. Without much wait, let us dive to understand more about this marketplace.
Why Forex?
Forex allows for exchanging the currency of one form for another. This is important because commerce happens in local or international region and the need for the regional currency arises during this inter-regional business or trade. Electronically traded currency over-the-counter (OTC) without a specific localized centre (decentralized) allows everyone engaged to take part in the trade regardless of their locality. The trade of currency occurs between the traders in market spread across major cities like New York, London, Tokyo and Sydney.
This OTC market is the largest liquid financial market with a turnover of about 6.5 trillion USD and active 24 hours a day for five days a week.
How does the market work?
The financial market is prone to fluctuations and this is due to the economy, market sentiment and geopolitical factors. So utmost care is needed before taking any decision to sell or buy in this market as the foreign exchange market is risky. Forex trade occurs in currency pairs (e.g. EUR/USD, USD/INR or INR/USD) where the first currency is known as the base and the second-mentioned as the quote currency. In a way, this could be simplified that one currency is sold to buy another one in forex.
There are two prices associated with the currency pair, one being the bid price other is the ask price. Let’s say the bid price and ask price for EUR/USD pair which is the most traded pair is 1.1916 and 1.1918 respectively, spread will be the difference between these two prices is a major factor that influences the market.
Analysis is the key
Sweeping profit in the market needs analysis and that is where you win the game. Since many factors could influence the financial fluctuations you must focus on news, economic reports, policies etc. This is generally known as functional analysis. And there is the second part known as technical analysis which involves research on-trend and price actions to interpret the patterns arising from them.
The foreign exchange market forms a medium where currency could be sold and bought devoid of any centralized location. This brings up many benefits to traders globally whereby they could do it if there is internet connectivity at their comfort through a broker.