What is Foreign Exchange Trading?
What Is the Forex Market? • “Forex Market” refers to the foreign exchange market and this is where currencies from all over the world are traded. Currency is a key part of global functioning because without it, no form of foreign trade or business can take place. • Think of it this way: if you live in the United Kingdom and want to buy Champagne from France, you have to pay for his product in euros (EUR), and this means your U.K importer will have to exchange the equivalent value of British Pounds (GBP). Currencies are exchanged on a daily basis - through travel, trade, etc. • A fascinating thing regarding this international market is the fact that there is no centralized location for foreign exchange. In fact, currency trading takes place electronically, through computer networks and between traders from all over the world. • Regal Core Markets reports that in comparison to other types of financial exchanges, Forex appears to be the most stable because it has the highest volumes of traffic and facilitates more or less $4 trillion daily transactions. The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide, according to Investopedia, in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney—across almost every time zone. This market is constantly active and price changes occur at a rapid rate.
Currencies Traded in the Forex Market In Forex, Regal Core Markets reports, eight currencies are exchanged in significantly big volumes. Hence, they are referred to as Major Currencies. They are the following: • • • • • • • •
USD (US Dollar) GBP (British Pound) EUR (European Euro) JPY (Japanese Yen) CHF (Switzerland Franc) CAD (Canadian Dollar) AUD (Australian Dollar) NZD (New Zealand Dollar) These aren’t the only currencies that are traded in the foreign exchange market. There are countless options for traders to try out, but these are simply the ones that are most well-known and are traded more often. Currencies are not traded alone, but rather in a pair. Traders will hold different currencies and pair them off to do an exchange.
Understanding Exchange Rates The term “Exchange Rate� refers to the amount by which one currency is traded for another. This rate is dependent on the current rate provided within a market .Traders make a profit through this when they do several exchanges across markets, days, and timeframes. For example, one trader may have an amount of USD that he wants to trade for EUR. The trader, then, finds the current exchange value for both USD and EUR. The amount of EUR he makes out of the exchange shall be based on the current rate in the specific market at that particular time. If he wants to gain more profit for his money, he may want to find another market with a higher exchange rate for the USD he has at the time. If he trades his USD for EUR in that particular market on that very day and time frame, he will make significantly more after taking advantage of high exchange rates.
Forex Trading Risks Forex trading, while beneficial for generating profit, can also be y and complicated. The international market consists of regulatory standards that differ at varying degrees and forex platforms and practices are not standardized. In fact, some areas in the world have forex platforms that are totally unregulated which poses security risks for all stakeholders. It is important that any interested trader does their due diligence by ensuring that the platforms on which they trade follow the required processes that make them secure, legal, and reliable.
The Forex Market Today During 2020, forex trading has been majorly impacted by the present COVID-19 pandemic. Due to the forced lockdowns and necessitated quarantine protocols initiated by most governments worldwide, financial corporations had to reduce their business hours and enact various strategies to limit the spread of the virus among employees and clients alike. These unfortunate measures led to instability in the Forex market and a global recession continues to be an imminent threat. Less liquidity is observed, and an increase in volatility is seen. But the market is back on the rise as traders have shifted to conducting low-risk investments, focusing more on the necessity of indepth monitoring tools and analysis reports. Interested traders should also reach out to reputable forex advisors who can help them implement secure and successful trading strategies. In unpredictable times as the ones we find ourselves in now, it is important to lean into the companies and leaders who are knowledgeably equipped for times such as this.