How do currency markets work?
In contrast to trading shares or commodities, forex trading occurs directly between two parties in an over-the-counter (OTC) market. The forex market is run by a global network of banks which is split among four significant forex trading hubs in different time zones: London, New York, Sydney and Tokyo. Forex trading is available 24 hours a day as there is not central location.
How do currency markets work?
The Forex market is divided into three categories:
– Spot Forex market: Takes place immediately after the trade is settle or within short period of time.
– Forward Forex market: A contact is agreed to buy or sell a currency at a specific price. The contract is settled at a specified 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 particular currency at a specified price and later date. A futures contract, is legally biding.
The majority of traders who speculate on Forex prices do not intend to take delivery of the actual currency; instead, they forecast exchange rates in order to profit from changes in market pricing.
What is a base and quote currency?
The first currency specified in a forex pair is referred to as the base currency, and the second currency is referred to as the quote currency. Since selling one currency to acquire another is a constant component of forex trading, it is quoted in pairs.
Each of the two currencies in the pair is identified by a three-letter code, which typically consists of two letters denoting the region and one letter denoting the currency. For instance, the currency pair GBP/USD entails purchasing the British pound and selling the US dollar.
Most providers split pairs into the following categories:
Major pairs: Includes EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD and AUD/USD
Minor pairs: Includes: EUR/GBP, EUR/CHF, GBP/JPY
Exotics: Includes: USD/PLN (US dollar vs Polish zloty) , GBP/MXN (Sterling vs Mexican peso), EUR/CZK
Regional pairs: Includes: EUR/NOK (Euro vs Norwegian krona), AUD/NZD (Australian dollar vs New Zealand dollar), AUD/SGD
You can learn more about the 4 best forex currency pairs to trade here
What moves the forex market?
Because there are so many different currencies in the forex market, it can be challenging to predict exchange rates because so many different things can affect price changes. But like most financial markets, forex is mostly influenced by supply and demand, so it’s critical to comprehend the factors that affect price variations here.
View this post on Instagram
