What is Forex Trading?

Forex trading stands trading various national currencies in the foreign exchange market, which is a worldwide system to set prices for exchanging currency. The system comprises buying, selling, and exchanging currencies at a different price range, which changes according to demand and supply. Over the past few years, with the help of the internet, this Online Forex Trading became very easy and accessible to all. Also, many services, firms, and online trading platforms are available on the internet, which provides Copy Trade Services where a trader can make a decent return on their investment without putting much effort into learning the marketing strategies and tactics.

Primary participants are large financial banks, investment banks, and foreign institutional investors. The currencies could not be traded in their absolute values so all the foreign currencies are generally traded, relatively with the currency of the biggest economy in the world, which is the US Dollar. For example, 1 USD is equal to some X amount of CAD, INR, EURO, etc.

How does Forex Trading work?

• Forex trading is not like buying and selling equity from and exchanges, but it involves direct two parties where one party is interested to take a position and the other party who wants to square off the position. Placing a buy or sell order is a very simple and easy process like any other financial stock or fund market. 

• Like any other market, in Forex trading also one buys at a lower level of the exchange rate and sells at higher levels. For example, 10,000 Euro is bought at 1.12 EUR/USD exchange rate that is 11,200 USD. After two weeks the exchange rates increase to 1.25 EUR/USD than the same 10,000 Euros could be sold at 12,500 USD. In total profit of (12,500-11,200=1,300), USD can be booked in two weeks.

• There are majorly three types of contracts.

1. Spot Contracts: In this type of trading contract, generally, delivery of the underlying assets (currencies) is settled in T+2 days. Where T is the trading date.
2. Forward Contracts: In this type of contract, the parties are supposed to settle the contract at a fixed rate within the range of future dates.
3. Future Contracts: In this type of trading, the parties are supposed to settle the contract at a fixed price and a fixed future date.

• Forex Trading is also known as a better way to hedge your holdings in the foreign. Many companies heavily invested in foreign business can largely be affected by the price variation in the currencies. So foreign exchanges provide a way to hedge a position and fix the price at which transaction will be completed. 

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