When Forex trading is concerned, people think that it is about ‘easy money’ or ‘extravagant instant riches’. But the road to success in trading isn’t always sweet and you have to know what is Forex trading before you can profit from it. Although it is the most liquid market and the biggest in the world, success is not always guaranteed or can happen overnight. It takes knowledge, patience, skills, and discipline to have lasting success in trading.
For this reason, before you get too excited with your trades, be aware of these important facts about the Forex market and Forex trading that will help you make better trading decisions.
What is Forex Trading?
Forex trading is the buy and sell of currency pairs in the Forex market. In the largest market of the world, there are central banks, hedge funds, investors, commercial companies, investment management firms, banks, retail traders, and Forex brokers. These are the main market makers.
How To Make Money in the Forex Market?
Traders in the Forex market speculate the rise and fall of currency pairs and they take advantage of it to gain profit. There are traders who are skilled enough to land some profits, also because they know what is Forex trading while others tend to lose on their first try. There are also market participants who are joining the market because of hedging purposes and they don’t really mind the profit.
Forex Spot Market
As the largest market in the world – The forex spot market may have participants who are not aware that they are actually trading in the market. If you went to a bank to exchange a currency, then you already participated in the Forex spot market.
Forex Futures Market
In Futures contracts, it works when you buy or sell a currency pair that is under a set time and date, as well as size. This market has operations around the world where these futures contracts are being traded. In this trading type, the seller will speculate that the currency in the futures contracts will be cheaper than the ones found in the spot market and this should happen before the contract date ends.
Forex Forwards Market
This time, the operation involves a bank. In the forwards market, operations can either be between a bank to another bank or a customer and a bank. There are standardized sizes and ages in Forex forwards unlike in Forex futures. It is also customizable to perfectly fit the needs of the trader.
What are the currencies that are most traded in the Forex market?
There are three types of currencies in the Forex market – the Forex Majors, the Forex Minors, and the Exotic Currency Pairs.
Forex Majors – they represent about 85% of the overall trades in the market. They are the currency of the largest countries across the world.
Forex Minors – these currency pairs do not involve the US dollar.
Exotic Currency Pairs – these currency pairs are thinly traded in the market. Their liquidity is low as well as their transaction volumes.
South African Rand