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What Is Forex Trading?

forex, businessman reading about foreign exchange market on tablet

The foreign exchange market (FOREX) is a global market for buying and selling fiat currency pairs. It is the largest global market with $6.6 trillion in currency traded daily.

If you’ve ever exchanged money while traveling, then you’ve participated in the FOREX market even if you don’t have a direct understanding of the market itself.

If you’re curious and want to know more about what is forex trading and FOREX trading for profits – then we have a guide made just for you.

Keep reading to learn more about the basics of FOREX trading.

What Is Forex Trading?

The foreign exchange marketplace is an over-the-counter market where buyers and sellers trade currency pairs at an agreed-upon price. These trades are made over electronic broker platforms. The most used platforms are mainly internet, or mobile-based, where a forex trading app is used.

As mentioned previously, most foreign exchange trades are made while traveling for practical purposes. However, some individuals, companies, and banks seek to exploit the volatility of currency prices in the market to extract a profit.

What Types of Forex Trades Are There?

There are four main types of trades involved in the forex exchange. They are options, forward trades, swaps, and spot contracts. Almost half of all trades performed are spots, while the other types of trades comprise the other half.

Spot Trading

Spot trading is the most common and familiar way of trading foreign currencies. It is the purchase of one currency in exchange for another, where the buyer and seller receive the money almost immediately.

FOREX Swaps

The FOREX swap occurs when two different parties agree to borrow currencies from each other at the current spot rate. Then, they enter a contract to swap the currencies back on a specific date in the future at an agreed-upon rate.

Forward Trades

Forward trades are popular with banks and businesses. They are performed much like a swap trade, except the trade occurs in the future where a fee is paid for a guaranteed exchange rate when the trade occurs.

FOREX Options

Forex options trading works just like any other form of an options trade. You enter into a contract to buy foreign currency at an agreed-upon date and price, and if the price on the date does not match – you are not obligated to purchase the currency.

What Are the Most Traded Currencies?

A little more than 85% of all global FOREX market exchanges get made with seven different currency pairs. They are known as the majors. They’re EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CAD, and USD/CHF.

The dollar is still chief among all the currency pairs getting traded because it is the world’s reserve currency. As a result, almost all international exchanges get paid out in United States dollars.

FOREX Trading Is a Growing Marketplace

Forex trading is still growing year in and year out. According to The Bank for International Settlements, the current FOREX marketplace is valued at around $6.6 trillion, up from $5.1 trillion in April of 2016.

We hope that you found this guide helpful and that you better understand what is forex trading. But, then, with a clear path of growth for the FOREX markets ahead, maybe it’s time you thought of trading them yourself.

Don’t forget to check out our blog for more information regarding trading and investing. See you there.

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