The Procedure For Forex Trading

The Procedure For Forex Trading

The Procedure For Forex Trading

Forex trading is very much unlike the other markets that we are used to. It is this fundamental difference that makes this market seem illusive to so many. In reality, it is much simpler than it is often touted to be. To ensure that you have a good idea before you begin trading, let's review some FX basics.

Where Is The Market?

The forex market is both nowhere and everywhere in the world. I say this because if you are looking for a physical building, which says forex market you are not going to find it anywhere on the planet. On the other hand, if you want to do currency trading, you can do it 24/7. The market is where buyers and sellers meet. With communication enabled by electronic means, the world is the forex market. You can take great advantage of this by buying and selling round the clock as and when changes happen.

Who To Contact

Now since there is no market, there has to be a market maker, someone who offers buy and sell quote and charges a small difference to make up for the loss of value in exchange. These are generally the banks. Since almost all importers and exporters use the banks as a medium to transact the bank requires large amounts of forex and is in the best position to mitigate risks. There are various currency changers that can do this job just as well.

How To Buy And Sell

As mentioned earlier, buying and selling happens electronically. There are systems that provide round the clock quotes and all you need to do is to click a few buttons. With communication enhanced, money flows in and out seamlessly and securely. Some service providers will give you trainings when it comes to placing and executing orders if you decide to make them your client.

What Are The Different Instruments Available?

There are various instruments available. Forex market is basically divided into two parts. One is spot market and the other is futures market.

* In the spot market you can go to liquidate your already existing asset. You will get the rate, which is prevailing in the market at that given point of time.

* In futures market you gain because you lock in a price today. Now when the future comes, the price could be lower or higher than what you have locked in. Depending on which side of the equation you are on, you shall win/lose money. You can also use this to hedge your future outflow by locking in prices if you think they are favorable. The majority of transactions take place in this market and there are various instruments such as:

1)Forwards: They lock in the price with a bank. So you can be assured of the rates. But there are counterparty risks which you face because ethe bank can also fail. But this is a very rare case.

2)Options: Some banks will sell you options. This means that you can protect your downside while still enjoying maximum upside.

Forex trading is much more detailed. But for a newbie, this can be a good place to start before they build up enough confidence by understanding the markets and its movements.

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