Forex provides an opportunity to interbank exchange of different currencies at free prices, and quotes are formed without restrictions and fixed values. Here Forex central banks of different countries, commercial, financial organizations, as well as various investment and other funds, conclude profitable transactions.

what is forex

Forward Forex Market – This involves a contract, which details a sell or buy order of a particular currency at a specified price. These contracts are usually settled at a predetermined future date. Trading strategies must contain an investing and trading plan which has been considered adequately and efficiently. It provides the investing objectives along with the risk tolerance, time horizons or timelines, tax implications, and other factors while trading.

Forex Trading Concepts

The volatility of a particular currency is a function of multiple factors, such as the politics and economics of its country. Therefore, events like economic instability in the form of a payment default or imbalance in trading relationships with another currency can result in significant volatility. Even though they are the most liquid markets in the world, forex trades are much more volatile than regular markets. This makes it easy to enter and exit apositionin any of the major currencies within a fraction of a second for a small spread in most market conditions.

Most forex trades aren’t made for the purpose of exchanging currencies but rather to speculate about future price movements, much like you would with stock trading. Although the forex market is closed to speculative trading over the weekend, the market is still open to central banks and related organizations. So, it is possible that the opening price on a Monday morning will be different from the closing price on the previous Saturday DotBig broker morning – resulting in a gap. Gaps are points in a market when there is a sharp movement up or down with little or no trading in between, resulting in a ‘gap’ in the normal price pattern. Gaps do occur in the forex market, but they are significantly less common than in other markets because forex is traded 24 hours a day, five days a week. Currencies are traded in lots – batches of currency used to standardise forex trades.

Forex Lots

Outside of possible losses, transaction costs can also add up and possibly eat into what was a profitable trade. Similarly, traders can opt for a standardized contract to buy or sell a predetermined amount of a currency at a specific exchange rate at a date in the future. This is done on an exchange rather than privately, like the forwards market.

Market Makers also offer their traders with fixed spreads as they control the prices at which orders are filled. These risks can, however, be mitigated through effective and adequate credit risk management. Traders need to adequately familiarize themselves with the rules and regulations according to which the Forex broker has to abide. Volatility risks pertain to the degree of fluctuations within the Forex market and it must be considered by all traders. Currencies are always quoted in pairs with the first currency in the pair being the base currency and the second the quote currency. Forex trading involves the selling of the base currency to buy the quoted currency.