What exactly is Forex all about?

You surely must have heard a lot about the Forex market, particularly from Forex traders who have been in the trade for quite some time now. But what exactly is this about? Forex or the foreign exchange market is actually the “place” or the “market” where people trade currencies. For instance, you live in America and you want to purchase a certain type of cheese from France over the Internet. The website that you want to purchase the cheese from sells products via the Euro currency. Thus, you need to exchange that equivalent value of US dollars or USD into Euros or EUR.

Why is the Forex market so big?

Forex traders would certainly tell you that the Forex market is the hugest and most liquid financial market you can ever find in the world today. It can dwarf even the global stock market in terms of size. On the average, the daily traded value could even add up to US$ 2 billion each day. Why is this so? This is because there is that need to exchange currencies. Especially with the advent of Internet technology where just about everything can be bought over the web, there is always that need to exchange currencies. This is precisely why there are numerous traders in the FX market who are doing quite well in the industry. Forex rebates offer an unique way of cutting down transactions costs,

The Three Ways to trade Forex:

  1. Spot Market: This is where currencies are sold and bought according to current price. This is the price determined by demand and supply and reflects economic performance, present interest rates, political sentiments, and how people perceive the future performance of one particular currency against another. Finalized deals are known as “spot deals”, and these are bilateral transactions where one party gives a stipulated amount of a particular currency to another party, thereby receiving the stipulated exchange rate value. 
  2. Forwards Market: Actual currencies are not traded here. Rather, the market deals with contracts representing claims to certain types of currencies. There is a specific price for each unit, as well as a future fate for the settlement to take place. The contracts are sold over the counter between the involved parties, who then determine their terms of agreement on their own. 
  3. Futures Market: Actual currencies are still not traded here. The contracts, however, are transacted with the bases of a standard size as well as a settlement date. The settlement date involves public commodities markets, like the Chicago Mercantile Exchange. The contracts in the Futures market contain very specific details, such as delivery dates, settlement dates, number of units traded, and unchangeable increments pegged at minimum price. The exchange that takes place is actually the trader’s counterpart, thereby providing both settlement and clearance.