Forex trading is a decentralized international market where a bank, commercial institutions, investors and government engage in buying and selling of currencies. It is a highly liquid market and its mechanism is same as stock market where you sell or buy securities but unlike shares, you cannot have the possessions of ownership of money. Based on the exchange rates you either profit or loss from the trade of currencies. The currency to be traded in the forex market is always referred to as versus another currency. For example, suppose you have to exchange dollar with euro then it will be termed as dollar vs. euro. In the given example dollar will be referred as the base currency and euro as counter currency. The appreciation or depreciation of base currency against the counter currency will be the gain or loss to you. In the above example, the dollar appreciation and depreciation will be calculated against euro. If you are a novice and reading this article makes you excited to trade in the forex market, you can take forex training in order to be the Alexander in the forex market. Forex Horsemen can be the great guide in making you expert in trading foreign currency.
Types of market to trade in forex
- Spot market: As the name suggests, in spots market currency are bought or sold on the spot based on the current exchange rate of currency. The spot market trades in real currencies, unlike the other markets. It is also called over the counter market.
- Future market: In a future market the party to sell the currency and the part to buy the currency makes an agreement to deal in future at a specified date. The price for trading is mentioned in their agreement.
- Forward market: The agreement for future contract to sell and buy currency is made here. The rate at which contract gets settle is called forward rate.