Forex Market: Trading Foreign Exchange and Making Money
What is the Forex Market?
The Forex market is the big playground for companies and hedge funds.
The Forex market is also a large-format exchange office, where currencies are exchanged at a fixed price; just as you change your money on holiday, e.g. to marvel at the pyramids. This exchange of currencies is called the foreign exchange market. By the way, five trillion US dollars change hands every day , making Forex the largest market ever.
Nevertheless, there is no central marketplace for foreign exchange, but the many traders trade among themselves worldwide via computer networks. This is precisely why Forex is an over-the-counter OTC market. Without a central marketplace, it is scattered across all time zones: its centers are London, New York, Sydney and Tokyo. This allows you to continue trading at any time, even if the trading day in one time zone has already ended. Nevertheless, currencies fluctuate only slightly in value , so many traders use a high leverage to maximize their profits.
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What markets does the Forex market include?
There are three ways you can trade foreign exchange on the Forex market: the spot market, the forward market and the futures market. Only the spot market really trades in currencies; the other two, on the other hand, trade in contracts.
– Spot market: There you buy and sell currencies at the current price. One party delivers an agreed currency amount and receives another currency at the applicable exchange rate in return. However, these transactions last up to two days, even if “on the spot” actually means immediately.
– Forward/Futuremarkets: In these markets, you do not trade in currencies, but in contracts that underlie the currencies. To do this, you agree to buy a specific currency at a specific price per unit and on a fixed date.
How are currencies traded?
The first hurdle is always the quote, which indicates the exchange rate from one currency to another. For example, the exchange rate from US dollar to euro would look like this: USD/EUR, the currency on the left (USD) is the base currency; the currency on the right (EUR) is the exchange rate currency. The base currency is always a unit; here a dollar. On the other hand, the exchange rate currency indicates how much you would get for the one dollar in euros.
In addition, the quotation is divided into direct and indirect : the national currency is the exchange rate currency; indirect: The local currency is the base currency. The transaction is now exchanged via a bid price (purchase) and a bid price (sale), both of which refer to the base currency.
If you buy a currency pair (long), the price indicates how much you must pay in the quoted currency for a unit in the base currency. The sale (short) is reversed how much you get for a unit of the base currency in the quoted currency.
EUR/USD = 1,1015/17
Bid = 1,1015
Asking price = 1,1017
So after the asking price, you can buy one euro for 1.1017 US dollars. But this was just a very small glimpse: become a club member at TradersClub24 and earn your own money on the Forex market.