Currency markets

The importance of the FOREX market

For those who do not know, the foreign exchange market, also referred to as FOREX, it the place where currencies throughout the world are actively traded. Not many people realize this, but the FOREX market is likely the most importance, as currencies need to be exchanged for business and foreign trade to be conducted efficiently.

FOREX market is also the largest and most liquid out of all markets, considering the fact that the average daily trade value is somewhere around 2,000 billion, considerably higher than the stock market as well. Additionally, there is also no central marketplace, as most transactions are done over-the-counter (OTC).

At this moment in time, some of the most tradable currencies are USD, EUR, GBP and the Chinese Yuan (CNY), especially when people choose to trade them with less-popular currencies, as more volatility can be achieved, thus higher profits if the trades are smart.

Spot market
This is where most currencies are purchased and sold on their current price, determined by supply and demand, but also interest rates, political situations, economic performance, and overall perception of the funds in question.
Futures and Forwards
Instead of trading actual currencies like on the spot market, futures and forwards trade contracts which represent claims to certain types of currencies, and have a few additions, such as a specific price for each unit, alongside with a future data when settlement can be achieved.

The main difference is that on the forwards market, contracts can be bought and sold between two parties who are free to determine the terms of the agreement, whereas on the futures markets, the contracts are sold and bought based on a standard size alongside with a clear settlement date on public commodity markets.

Clear and smart trading strategies are essential to achieving success on the forex market, which is why many traders choose to shy away, and focus on other markets, such as the stock market.

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