Skip to main content

How do currency markets work?

How do currency markets work?

Regardless of whether you decide to trade via a broker or with derivative products, it is important to have an understanding of how the underlying forex market works.
Unlike shares or commodities, forex trading does not take place on exchanges but directly between two parties, in an over-the-counter (OTC) market. The forex market is run by a global network of banks, spread across four major forex trading centres in different time zones: London, New York, Sydney and Tokyo. Because there is no central location, you can trade forex 24 hours a day.
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 – ie ‘on the spot’ – or within a short period of time
  • Forward forex market: a the 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 the 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
​Most traders speculating on forex prices will not plan to take delivery of the currency itself; instead, they make an exchange rate predictions to take advantage of price movements in the market.

Comments

Post a Comment

Popular posts from this blog

What is a base currency?

What is a base 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, which is why it is quoted in pairs – the price of a forex pair is how much one unit of the base currency is worth in the quote currency. Each currency in the pair is listed as a three-letter code, which tends to be formed of two letters that stand for the region, and one standing for the currency itself. For example, GBP/USD is a currency pair that involves buying the Great British pound and selling the US dollar. To keep things ordered, most providers split pairs into the following categories: Major pairs. Seven currencies that make up 80% of global forex trading. Includes EUR/USD, USD/JPY, GBP/USD and USD/CHF Minor pairs. Less frequently traded, these often feature major currencies against each other instead of the US dollar. Includes: EUR/G...
Post a Comment
Read more

What is a forex broker?

What is a forex broker? A forex broker is a firm that buys and sells currencies on behalf of retail traders, usually via a forex trading platform. Like stockbrokers, they charge a fee – though usually in the form of a spread instead of commission – in order to execute orders placed by their clients. However, a key difference is that forex brokers will place trades over-the-counter instead of on an exchange. Traditionally, a lot of forex transactions have been made via a forex broker, but with the rise of online trading you can take advantage of forex price movements using derivatives like spread betting or CFD trading .
Post a Comment
Read more