Top Things to Know About Forex
Trading has been the pillar that has kept the world economy running for centuries, and the scenario hasn’t changed radically, albeit there surely are differences to the structure today. Stocks had occupied the premier position in trading for the longest time but has now been vying with forex to keep that intact. The struggle is, undeniably, a strenuous one since forex has been garnering a lot of users in the recent past. What used to be conceptualized as the mere exchange of currency for personal uses has become a business. When you do so by converting your local currency into a different one, you are also a part of the bigger picture.
Foreign exchange market, known as forex, is simply the buying and selling of one currency in exchange for another. It has now become the most heavily traded market in the world. Trading is easier in forex because no much capital is required, making for the legions of people and businesses participating in it. Value of currencies will either be pushed up or down relative to other currencies by the demand for that particular asset. If you are new to forex trading, you need to have a basic understanding of what the trade entails. Let us have a look at a few aspects of forex trading that you need to know before starting the trade.
Forex might seem to be an easy form of trade on the surface, but the layers that lie beneath aren’t as delicate and superficial. But when it is your first time in the business, it is the fundamentals that you need to understand. These will include the terminologies and the basic working of it.
2. Types of Forex Market
No exchanges are present in forex trading, unlike in stocks; instead, there is only a direct deal between the two parties in an over-the-counter market. Forex can be traded at any time of the day since it functions without a central location. The three types of the forex market are:
- Spot forex market
- Forward forex market
- Future forex market
3. Currency Pairs
Forex trade functions on the currency pairs; their total value will be dependent on both the currencies in the pair. The base currency in a pair is the one that comes first in the list, and the second currency in the pair is the quote currency. One unit of the base currency’s worth in the quote currency is the price of a forex pair. A three-letter code is used for each currency in the pair, of which, the first two letters stand for the region and the last one stand for the currency’s name. Also, the pairs have been split into four different types for a better order, and they are major pairs, minor pairs, exotics, and regional pairs.
4. Factors Influencing the Market
Several factors can affect the market’s conditions and increase or reduce the value of a currency pair. Some of these factors that move the forex market are:
- Central banks that regulate the currency
- News reports about the market’s conditions and a currency’s value
- Market sentiment
- Economic data
- Credit ratings