Forex trading platforms have become one of the strongest and the biggest markets in the world. In this Forex guide, we are going to discuss everything you could possibly know about online forex platforms.
What is forex trading?
Forex is a network of buyers and sellers who exchange one currency with another currency for various reasons, such as travel, commerce, and trading. It is the means by which various central banks, companies, and individuals exchange currencies with each other at an agreed price. If you have ever traveled outside your country, then you have surely made a forex transaction.
Although many people do a foreign exchange for practical reasons, most currency conversion is done with the aim of making a profit. The number of currencies converted on a daily basis can make the change in the prices of some currencies very unpredictable. This unpredictability makes foreign exchange so interesting to traders.
How do currency markets work?
Forex trading is done in an over-the-counter (OTC) market, directly between two parties. The foreign exchange market is managed by a global network of banks. It is situated in four major forex trading centers: Tokyo, London, Sydney, and New York.
There are various kinds of forex markets:
1. Spot Forex Market
The Spot Forex Market is where people buy and sell currencies depending on their trading price. This price depends on various factors such as economic performance, current interest rates, and political situations.
2. Forward Forex Market
The Forward Forex Market is where a private agreement is made between two parties at a chosen price and at a future date.
3. Future Forex Market
Future Forex Market is where an agreement is made between two parties to buy or sell a currency at a specific price and at a future date.
What is a base and quote currency?
The first currency in the forex, the pair is called the base currency, while the second one is known as the quote currency. Forex trading requires buying one currency to sell another, that’s the reason it is quoted in pairs – the cost of forex set is the amount one unit of the quote, the currency is worth in the base currency.
To keep things organized, various suppliers break pairs into the following categories:
1. Major pairs
Major pairs are the seven currencies that comprise almost 80% of global forex trading. These are USD/CAD, USD/JPY, EUR/USD, GBP/USD, NZD/USD, USD/CHF, and AUD/USD.
2. Minor pairs
Minor pairs are less frequently traded. These usually include GBP/JPY, EUR/GBP, and EUR/CHF.
3. Exotics
Exotics are currencies from small or emerging economies against major currencies. These are GBP/MXN, USD/PLN, and EUR/CZK.
4. Regional Pairs
Regional Pairs are classified by region – like Australasia and Scandinavia. These are AUD/NZD, EUR/NOK, and AUD/SGD.
What moves the forex market?
The Foreign exchange market consists of currencies from all the countries around the world, which makes it difficult to predict the exchange rate because there are various things that could result in price movements. But, like various financial markets, forex is majorly run by the forces of demand and supply, and it is essential to get an understanding of the factors that makes price fluctuations here.
Economic data
Economic data are fundamental to the change in the price of currencies for two different reasons – it provides a hint of the way an economy is working, and it gives an insight into the central bank’s future plans.
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