Currency Exchange – What Is It?
Forex, which means” abroad “and “exchange,” is an acronym for Foreign Exchange. The foreign exchange market is an over-the-counter, global market for the trading of different currencies. This marketplace determines international exchange rates for each currency involved in the trade. It includes all areas of trading for buying, selling, and exchanging currencies in determined or fluctuating prices.
The forex market, also called FX, is a dynamic market that is flooded with transactions taking place daily. This is because the free market works 24 hours a day seven days a week. It is much more volatile than the traditional stock exchange. The reason for this is that unlike the stock market, where a company’s stock can only be sold or bought at its price the instant it is bought or sold, in the free market the price of a particular currency does not change for a certain period of time; therefore traders can buy and sell the same currency simultaneously, which results in its gain or loss.
Forex deals with the buying and selling of currencies from different countries. In the forex markets one currency is referred to as the main currency while another currency is called the back-up currency. Since forex trades occur in numerous countries, they are known as cross-market trades. These are the most common forex trades that take place everyday.
There are many factors that affect the value of a currency – such as supply and demand, economic fundamentals, political developments, etc. Foreign exchange traders buy one another’s national currencies with the objective to make a profit when the value of one another rises. A forex trader can buy one currency and then sell another by making a bet that he will gain money if his currency will rise.
The Forex futures market is different in many ways from the Forex spot market. Unlike in the Forex spot market, you don’t actually pay for the goods/services you purchase. Instead, you pay for the right to buy them. In the Forex futures market, you also pay for the right to sell your contracts after a set date (the expiration date). In the Forex spot market, you only pay for goods/services that you have purchased.
Forex futures is one of the best ways for a trader to make money. It works like this: if a trader believes that the euro will lose value in the upcoming weeks and months, he can buy Euro futures contracts and at the same time sell currencies of other countries in the same trading session. He will profit from the difference between the bid and ask prices, and if the euro will fall in the coming days, he can sell the contracts that contain a position for him. However, if he believes that the euro will rise after the expiry date, he may hold on to those contracts that contain a position for him.
