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Forex Exchange

Forex Exchange Market

The forex market is also known as the foreign exchange market and is the world’s biggest financial market. It is where foreign currency trading takes place through the buying and selling of special foreign currency pairs with different traders in different exchanges.  The exchange rate depends on the performance of a foreign currency pair on different international exchanges. Forex trading is different from investing in the stock market. The forex exchange is global and the stock market is based on business products within one country. Other differences between these two markets is that fx trading can take place 24 hours a day and stock trading only takes place for 8 hours per day.  Also, when trading in one of the stock market exchanges you are only trading in that country’s currency, but when trading in a forex exchange you may trade many types of currencies across countries.

Explained below are the major players when trading forex. These include the consumers, the businesses, investors, speculators, investment banks, commercial banks, and central banks.  Consumers who are visiting other countries need to exchange currencies when they are traveling in order to buy local goods and services. They cannot determine the price on the forex exchange, but they do make-up a significant portion of the volume traded in the market. Businesses are another major player since they import and export goods and services needed to exchange currencies to receive or make payments for goods they may have bought or services they may have rendered. Investors and speculators also require currencies to buy and sell investment instruments such as shares, bonds, real estate, or bank deposits. The forex exchange also consists of investment banks and large commercial banks.  These banks determine the prices through buying and selling currencies at the bid-and-offer exchange rates declared through their forex exchange dealers. Foreign exchange trading also includes central banks that participate for a particular government. They trade currency to help even out the fluctuation of the value of their economy’s currency and to facilitate government monetary policies.

Forex currency trading is truly the largest exchange in the world. The amount of dollars traded through the forex exchange is in the trillions, and this market is generally considered to be less volatile than the stock market. This is because it is highly unlikely for the value of a single currency to move much through the course of a trading day, unlike stocks. There are several different markets within the forex exchange system. There is the spot market that deals with trades based on the current values of currencies and it takes two days for settlement. Two traders will exchange an equivalent amount of a different foreign currency. The other two types of forex markets are the forward and the futures markets. The buyer and the seller agree on an exchange rate and a transaction is set for a specific time in the future in a forward market. The trade is then executed at the time regardless of what the rates are. On the contrary the futures market is when futures contracts are bought and sold based on a standard contract size and maturity date. These trades take place on public commodities markets.

This is quick overview of the forex exchange that should help you get started. If you are seriously interested in trading forex, then you must invest in your education and study very hard before you begin. This is not an area to jump quickly into, although investing your money should never be!



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