What is Foreign Exchange Trading

Foreign Exchange Trading Intro

This article looks at what foreign exchange trading is and the different markets that you can use.

Before you jump into the world of foreign exchange trading you need to know what this is.  There are a number of different points to foreign exchange trading that you need to consider.  You have to know what forex is and about the different markets that you can complete foreign exchange trading on.  When you know about this you will be able to trade on the markets with more confidence.  You will also be able to determine what the next step in our trading journey should be.

What is Foreign Exchange Trading?

The first point that you have to consider when you look at the forex market is what foreign exchange trading is.  Foreign exchange trading is the act of trading one currency for another on the forex market.  When you trade on the forex market there will be not physical exchanges.  This means that you are going to be speculating on the prices of the market and making a profit from the movements.

In order to trade correctly you should understand more about the forex markets.  The forex market is the only market that is completely decentralised.  This means that the market does not have an exchange that all the trading will go through.  The foreign exchange trading that is done will be online and through the trading platforms that you get from the forex brokers.

The Different Markets

There are three different markets that you can use to trade forex.  These are the spot, options and futures markets.  The trading that you complete on these markets will all be different.  There are also certain markets that are not recommended for certain traders.  You should consider the trading that you can do on the different markets so that you can determine which one will be the best for you.

The Spot Market

The spot market is the forex trading market that most retail traders are going to use.  The spot market allows you to trade one currency for another.  The prices that you work with will be the real time market prices for the different currency pairs.  There are a number of factors that will impact the prices that you are going to be using.  These factors will include the fundamental news from the currency and the technical movements.  The spot market is the one that most traders will be using and what retail brokers will offer access to.

The Futures and Options Markets

The futures and options markets will work differently to the spot market.  When you trade on these markets you will not actually be trading the different currencies.  You will be trading contracts that represent the currency type.  The contracts that you trade with will be binding and will generally cost more than the transactions that you complete on the spot market.

There are many traders who will use these markets as a protective measure against the trading that they do on the spot market.  To do this you will be using hedge trades and you will need to have the capital to buffer this trading.

 

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