The forex market (foreign exchange) has no central location. In this market, transactions occur in many forms. The transactions take place through different channels around the world. The time frame is 24 hours a day and traders can exchange currencies whenever they want.
Retail Forex Brokers
Individual retail traders can do speculative trading with these brokers. Compared to the total portion of the currencies exchanged in the world, this area is very small.
The best forex brokers provide access to trading platforms for the traders to sell or buy currencies. Currency traders can easily access the market through these brokers 24 hour per day.
Central Banks
By selling and buying currencies, central banks can control their interest rates, money supply, and inflation. A country’s central bank sometimes uses their foreign and national currency reserves to stabilize their currency markets.
Commercial Businesses
If the company needs to sell or buy to a company in a foreign country, a forex transaction will occur. For instance, euros may need to be bought by a US-based company for paying an invoice to a French company.
In this case, there will be a forex transaction. Companies dealing with foreign suppliers or customers often take further steps and sell or purchase currencies.
It is proposed to hedge against the movements of the future exchange rate. The risk of the exchange rates to being out of the equation can be taken by companies by locking in today’s exchange rate.
Interbank Market
The biggest part of the forex market is the interbank market. It includes the above trading areas. Banks often be an intermediate of customers’ forex transactions.
Banks also frequently trade their accounts. Since forex trading has no central location, the action of many players and the prices are not controlled by a central body.
This is a lucrative and new area for speculation. However, investors should pay attention and be aware of the risks when trading forex.
Type of the Forex Market
Forex market consists of three types. They are futures, forward, and spot. Let’s jump into the explanation of each type.
1. Futures Market
In terms of basic functionality, forward and futures markets are similar. However, the significant difference is that a centralized exchange is used in the future market.
Thanks to it, there is no risk of a counterparty for either party. This assist ensures high liquidity of the futures market when compared to the forward market.
2. Forward Market
In a forward market, sellers and buyers agree to currency trading at a set quantity and price on a specific date in the future. When the deal is made, there is no money exchange of hands.
The parties involved can be governments, individuals, companies, or the like. This market is beneficial for hedging.
3. Spot Market
When it comes to currency exchange between sellers and buyers at the current exchange rate, there is an intermediate which is the spot market. Much of the currency trading is made by the spot market.
The main participants in this market include investment, commercial, brokers, dealers, central banks, and speculators. Major spot trades are made by investment banks and large commercials.
On the drawback, this market is relatively liquid and lacks centralized trading. In addition, there is a risk of a counterparty which is the other party will default.
Forex trading becomes easier today as there are abundance of reliable brokers like Didimax forex broker. You can just start the trading in an easy step. We provide various trading instruments and give you many advantages. We are a licensed broker you can trust to trade in
the forex market.