What is Foreign Exchange Market? Beginners Guide

Foreign exchange markets conform to the further growth of digital technology resulting in an inevitable transition into digital life.

You might once heard the word "Forex" or "foreign exchange", and maybe you would want to have even a glimpse of knowledge about its concepts, or even to know what is it all about.

Now as you come across this article we will have a humble journey with you to learn the basic concepts of Foreign currency exchange markets.

What is the Forex market

A foreign exchange market which is also known as Forex trading, or Retail Forex, or FX is an over-the-counter global market of foreign currencies that determines the exchange rate of currencies for the global market. The currencies in a Foreign exchange market are traded in pairs, that is buying one currency and at the same time selling the other like exchange in pairs of US dolor against Euro (USD/EUR), US dolor against Japanese Yen  (USD/JPY), British Pound against US dolor (GBP/USD), etc.

The Forex market is the world's largest financial market today with a volume of over two trillion dollars daily. The market operates 24/5½ which is 24 hours in five and half days a week.

Foreign exchange trading like other forms of trading involved a system of losing and gaining. But it is one of the most profitable global markets if one knows more about its logistical aspects.

In Forex currency trading there is no physical exchange, it only happens electronically with the aid of computers. This is an over-the-counter form of trading that has no centralized market.

The Forex market involved middlemen,  brokers, and other institutions that usually collect fees at almost every step of the trading process.

What are the most traded Currencies in Forex Market?

Many currencies are traded in the Foreign exchange market but the most commonly known currencies with high liquidity in the market include Dollar (USD),  Euro (EUR), the Japanese Yen (JPY), the Canadian Dollar (CAD), and the British Pound (GBP).

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Types of Foreign Exchange Market

1. Spot Forex Market 

This involved an instant selling and buying of Foreign currencies as far as the current exchange rate. The trading usually took one to two days to accomplish. About half of the foreign currencies are traded through the spot market which makes it the largest among the others. Commercial banks, central banks, dealers, and brokers are the major participants in the spot market.

2. Forward market

This market involves two parties agreeing to trade at a specific price, defined quantities, and with a speculated period. The pair of parties could be two individuals, government agencies, or two companies.

3. Future market

This is similar to a forward market in terms of basic philosophy but it has enhanced features which include centralized trading, standardized contracts, absence of counterparty risk, unlimited number of participants in a single trade.

Difference between Forex And Crypto Trading

Some people have misunderstood the concepts of cryptocurrency as they keep balancing it with foreign exchange, yet they shared some common attributes, when we look at it in detail we will discover some areas where they split with each other. let's weigh the two terms in terms of credibility and chance of profit volume.

1. Although Forex trading has no central marketplace, it has been considered to be safer than cryptocurrency trading. Foreign currency trading is slightly regulated by the governments through their central banks and commercial banks. While cryptocurrency trading has no central market or authority, there are three types of participants involved in it, the miners, traders, and the exchange (digital marketplace).

2. Foreign exchange trading has a high-profit value, and it is less volatile than Cryptocurrency trading. 

3. Forex trading has a high trading volume and is more acceptable, unlike crypto trading which is not accepted in some countries.

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