businees — October 29, 2018 at 11:08 am

Introduction to the foreign exchange markets

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The forex market is a vital part of the infrastructure that facilitates international trading, every transactional deal that takes place between two or more organizations located in two different jurisdictions takes directions from the FOREX market that determines at which rate the two currencies belonging to two different nations must exchange upon.

Initially a tightly knit community that included only international banks, today the FOREX market has extended into multinational companies and individual retail traders. It is unable to conclude just about how many traders around the world as FOREX Australia alone records transactions over the thousands on a daily basis. It is by the far the largest and most liquid market in the world but takes a back seat in comparison to the stock market due to the restrictive nature of bank-offered Forex trading services and the fact that in general, the public is not aware of how FOREX really works and because there is a stigma created that FOREX trading carries far more risk than the other investment options. FOREX is definitely a lucrative source of income but it is also a skill that is acquired over close observation of how the market is trending, therefore while being optimistic to embrace it, it is best not to put all your eggs in one basket and not utilize funds that are required for re-occurring financial commitments utilities/ rent. Especially during the initial stages of trading.

How an fx trade works

The objective of an FX trade is to earn a profit form the movement of the FX rate. When a trader believes currency ‘’A’’  will increase in value against CCY ‘B’’ he purchases CCY ‘’A’’ at the current lesser exchange rate in order to re sell it at a higher value in exchange for CCY ‘’B’’.

Bids and Offers (Asks)

The bid: the price that the buyers are willing to pay for a certain FX exchange.

The offer: the price at which it is offered for Sale.

The difference between the two are known as the SPREAD. The spread created competitive advantage to the holders of the major currencies as often they are in high demand.  Transactions around the world happen in over 170 unique currencies but 2/3 of the turnover in the FOREX market happens with in the below ‘’major’’ currency pairings.

EUR/USD

USD/JPY

GBP/USD

AUD/USD

USD/CHF

USD/CAD

 

In the above currency pairings the first currency indicated in referred to as the dominant CCY and the later in known as the counter CCY. EUR, GBP and the USD have the most yielding power in the market mostly and are the league players of the platform.

 

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