In the beginning: you'll see the terms: FX, Forex, foreign exchange market and money market. These conditions are synonymous, and all relate to the Forex market. Forex is the "place" financial subjects exchange currencies. Currencies are essential for many people throughout the world if they realize it or not. People must exchange currencies to be able to conduct foreign trade and business.
Suppose you're living in the German and need something from the U.S. Either you or the business that you get that must pay it in the U.S. dollars. This means that the German importer would have to exchange the same value of Euros into U.S. US dollars (USD). The same goes for traveling. A Greek traveler in China can't pay in Euros to start to see the China wall because it's not the locally currency. So, the tourist has to exchange the euros for the local currency. In cases like this, the China Yuan, at the current exchange rate.
The need to exchange currencies is the principal reason the Forex market is the largest. And it is the most liquid financial market in the world. It dwarfs other markets in proportions. Even the stock market. With the average traded value of around U.S. $5,000 billion per day. One unique facet of this international market is that there surely is no central market for foreign exchange. Rather, Forex trading is conducting electronically, meaning all transactions takes place via computer systems between traders around the world. Rather than using one centralized exchange.
Working hours at the market is 24 hours per day, five days a week. Forex traders trade currencies worldwide in the major financial focuses on the entire world - across every time zone. Which means that when the trading day in the U.S. ends, the Forex market commences anew in another time zone. As such, the Forex market can be hugely active in any moment of your day, with price estimates changing constantly.
Trading stock exchange
There are actually three ways that someone can trade Forex: the location market, the forwards market, and the futures market. The Forex trading in the spot market always has been the most significant market since it is the "underlying" real advantage that the forwards and future's marketplaces derive from. In the past, the futures market was typically the most popular venue for merchants. It was available to individual investors for a longer period of your time. However, with the advent of electronic trading, the spot market has observed an enormous surge in activity. And now surpasses the futures market as the most well-liked trading market for specific traders and speculators. When people refer to the Forex market, they are referring to the spot market.
What is the spot market?
More specifically, the spot market is where you can buy currencies and sold at the current money exchange rate. That price, determined by resource and demand, is a representation of many things. Including current interest levels, economic performance, sentiment towards ongoing politics situations (both locally and internationally). And as well as the conception of the future performance of one currency against another. Whenever a trader has a deal, this is actually a "spot deal." It is a bilateral transaction where one party delivers an agreed-upon money total the counterparty and gets some amount of another currency to the current exchange rate value. After a position is closed down, the settlement is within cash.
What are the forwards and future's marketplaces?
Unlike the spot market, the forwards and futures market segments do not operate genuine currencies. Instead, they package in deals that represent says to a certain currency type, a particular price per device and a future date for a settlement deal. In the forwards market, contracts are bought and sold OTC between two functions. They determine the terms for the agreement between themselves. Future's contracts have specific details. Like the number of systems being traded, delivery and settlement dates, and minimal price increments that cannot be tailored.
The exchange acts as a counterpart to the investor. Investor is providing clearance and settlement deal. Both types of contracts are binding and are typically settled for cash for the exchange in question upon expiry. Although deals can be bought and sold before they expire. The forwards and future's marketplaces can offer coverage against risk when trading currencies. Usually, big international firms use these market segments to be able to hedge against future exchange rate fluctuations. However, speculators take part in these markets as well.