In simple words, the forex market is where the exchange of currencies occurs. It is a global financial market considered the most liquid market in the world. It works in currency pairs. If you think one currency is stronger than the other, you make a profit and vice versa. Let’s understand this with an example. Whenever you travel internationally, you must exchange the currency in your wallet with the currency of the country you visit. You might have seen a screen displaying different exchange rates at the exchange rate. This exchange rate refers to the relative price of the currencies of two different countries. You might have felt surprised when you saw that 1$ is worth 100 yen. And, let’s suppose you have $10; that moment for you would have been, “I am going to be super rich!” So, if you have been in this situation, you have already participated in forex trading. Because this is just how the forex market works (exchanging one currency for another).
The foreign exchange or forex or market is a decentralized market. The currency exchange can be done for a variety of purposes such as commercial, tourism or international trade. In the above example, tourism led to the currency exchange. Forex is traded in the forex market, which is open 24*5 and has a global turnover exceeding $6.5 trillion. The best feature of the forex market is that there is no central exchange, meaning all the transactions are executed electronically through computers. It is called Over The Counter market.
Now let’s get to the process of forex trading. It involves the speculation of currency prices to make a potential profit. As mentioned above, currencies are traded in pairs, so when a trader exchanges one currency for another, he is speculating whether the value of one currency will rise or fall against the other country’s currency value. The currency’s value can rise or fall due to numerous economic, political and other factors affecting the demand and supply of the forex. Thus, the forex market is considered highly volatile, thereby offering ample opportunities for traders to take advantage of currency price fluctuations.
To access the forex market, you need a forex broker. A forex broker acts as a middleman and enables traders to trade currencies based on price movements. Global brokers offer their clients reliable trading platforms where they can actually buy and sell currencies using their smartphones, laptops, PCs and tablets. Additionally, some brokers also provide leverage to the traders so that they can control a large position in the forex market with a small amount of capital. However, it is essential to remember that leverage can magnify both profits and losses. With the advent of technology, many forex brokers have come up to offer their services to traders online. Some are trustworthy; others are not. So, how can you make sure you steer away from unreliable forex brokers? Well, several online platforms offer genuine forex broker rating to help you choose the best one.
Overall, forex trading has lots of benefits for traders. Firstly, you can trade round the clock in different time zones across the globe. Unlike the stock market, the forex market has no central exchange. Thus, you can take advantage of the volatility whenever it happens. Also, the forex market is highly liquid, allowing you to execute the order effortlessly and quickly.