What is Forex Market?? How Its working??

Forex

, also known as Foreign Exchange

 or FX trading

, is the conversion of one currency into another. It is one of the most actively traded markets in the world, with an average daily trading volume of $5 trillion

.

Forex exchange or Foreign Exchange or you can say that FX Exchange where you can change One Currency into Another Currency easily, or you can call it is broad network of a buyers and sellers, where they can exchange or transfer their currency at agreed price.

– If you think about the history of the market so we can say that it has been around us for the centuries, People have always exchanged or bartered goods and currencies to purchase goods and services.

– According to the Bretton Woods in 1971 more currencies were allowed to float freely against one another. 
-The values of individual currencies vary based on demand and circulation and they are monitored by foreign exchange trading services.

Supply is controlled by Central Banks, who can announce measures that will have a significant effect on their currency’s price. Quantitative easing, for instance, involves injecting more money into an economy, and can cause its currency’s price to drop.

– It is the means by which individuals, companies and central banks convert one currency into another.
– You know that According to a 2019 triennial report from the Bank for International Settlements (a global bank for national central banks), the daily trading volume for forex reached $6.6 Trillion in April 2019.

– The amount of currency converted every day can make price movements of some currencies extremely volatile. 
– It is this volatility that can make forex so attractive to traders: bringing about a greater chance of high profits, while also increasing the risk.
How it is working???? 

Forex Trading does not take place on exchanges but directly between two parties, in an Over-the-Counter (OTC) market.

The market is run by a global network of banks and with across the world with few major forex trading center’s.
– The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney.

– It is the means by which individuals, companies and central banks convert one currency into another – if you have ever travelled abroad, then it is likely you have made a forex transaction.

– While a lot of foreign exchange is done for practical purposes, the vast majority of currency conversion is undertaken with the aim of earning a profit.

– The amount of currency converted every day can make price movements of some currencies extremely volatile. It is this volatility that can make forex so attractive to traders: bringing about a greater chance of high profits, while also increasing the risk.

There are three different types of forex market:

Spot forex market:

The physical exchange of a currency pair, which takes place at the exact point the trade is settled ‘on the spot’ – or within a short period of time.

Forward forex market:

A contract is agreed to buy or sell a set amount of a currency at a specified price, to be settled at a set date in the future or within a range of future dates.

Future forex market:

A contract is agreed to buy or sell a set amount of a given currency at a set price and date in the future. Unlike forwards, a futures contract is legally binding.

What is a base and Quote Currency???

A Base currency is the First currency listed in a forex pair, while the Second currency is called the Quote Currency. Forex trading always involves selling one currency in order to buy another.

If the pound rises against the dollar, then a single pound will be worth more dollars and the pair’s price will increase. 
If it drops, the pair’s price will decrease, if the base currency is going high than you go with long position and if the base currency is going down than you need to go to take short position.

– Seven currencies that make up 80% of global forex trading. Includes EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD and AUD/USD. These are major currency pairs in Forex market.

– Less frequently traded, these often feature major currencies against each other instead of the US dollar. Includes: EUR/GBP, EUR/CHF, GBP/JPY these are lesser used currency pairs in the market.

– A major currency against one from a small or emerging economy. Includes: USD/PLN (US dollar vs Polish zloty) , GBP/MXN (Sterling vs Mexican peso), EUR/CZK we call them a exotic pairs of the market.

– Pairs classified by region – such as Scandinavia or Australasia. Includes: EUR/NOK (Euro vs Norwegian krona), AUD/NZD (Australian dollar vs New Zealand dollar), AUD/SGD.
Market sentiment

– Market sentiment, which is often in reaction to the news, can also play a major role in driving currency prices. If traders believe that a currency is headed in a certain direction, they will trade accordingly and may convince others to follow suit, increasing or decreasing demand.

that inflation in the eurozone has risen above the 2% level that the European Central Bank (ECB) aims to maintain. The ECB’s main policy tool to combat rising inflation is increasing European interest rates – so traders might start buying the euro in anticipation of rates going up. With more traders wanting euros, EUR/USD could see a rise in price.

Spread :

The spread is the difference between the buy and sell prices quoted for a forex pair. Like many financial markets, when you open a forex position you’ll be presented with two prices. If you want to open a long position, you trade at the buy price, which is slightly above the market price. If you want to open a short position, you trade at the sell price.

Lot in Forex :

Currencies are traded in lots – batches of currency used to standardize forex trades. As forex tends to move in small amounts, lots tend to be very large.
A standard lot is 100,000 units of the base currency. So, because individual traders won’t necessarily have 100,000 pounds.

Leverage in Market:

Leverage is the means of gaining exposure to large amounts of currency without having to pay the full value of your trade upfront. Instead, you put down a small deposit, known as margin. When you close a leveraged position, your profit or loss is based on the full size of the trade.

What is margin in forex?

Margin is a key part of leveraged trading. It is the term used to describe the initial deposit you put up to open and maintain a leveraged position. 
– When you are trading forex with margin, remember that your margin requirement will change depending on your broker, and how large your trade size is.

– Margin is usually expressed as a percentage of the full position. So, a trade on AUD/USD, for instance, might only require 1% of the total value of the position to be paid in order for it to be opened. So instead of depositing AUD$100,000, you’d only need to deposit AUD$1000.
All the best for your trading………