Forex market is the market where traders can purchase, sell, and hypothesize on currencies. This market is consists of trading companies, banks, central banks, hedge funds, investment management firms, investors, and retail forex brokers. Forex market is the largest financial market with more than $5 trillion daily transactions, which exceeds the combined futures and equity markets.
The forex market involves the purchase of one currency and simultaneously the sale of another. In the forex, traders try to make a profit by buying and selling currencies by actively predicting the direction of future currencies. The forex market has three different types defined below:
Spot forex market
The physical trade of a currency pair happens at the fixed point where the trade is made, which is “on the spot” or in a short timeframe.
Forward forex market
A contract is agreed to sell or buy a certain amount of currency at a fixed point, fixed on a future date or in the range of future dates.
Future forex market
A contract is agreed to sell or buy a fixed amount of currency at a fixed price and future date. Unlike forward, future contracts are legally authoritative.
Most traders who speculate on forex exchange prices will not plan to supply the currency themselves. Instead, they predict exchange rates to take advantage of price movements in the market.
Forex market basics
The forex exchange market is not a single market exchange, but a global network of computers and brokers worldwide. Forex brokers also act as market makers, bidding and asking for a currency pair price, which is different from competitive bidding in the market.
The forex market is consists of two levels; Interbank Market and Over-the-counter (OTC) Market. The Interbank Market is where enormous banks trade currencies for purposes like balance sheet adjustments and hedging on clients’ behalf. OTC Market is a place where people trade through online platforms and brokers.