Foreign exchange markets, also known as Forex or FX markets, play a crucial role in the global economy. These markets facilitate the trading of currencies from different countries, allowing businesses and individuals to conduct international transactions.
The forex market operates 24 hours a day, five days a week, making it the largest and most liquid financial market globally. It dwarfs all other financial markets with an average daily turnover of around $6 trillion. The participants in this market include central banks, commercial banks, hedge funds, multinational corporations, and individual traders.
One key feature of foreign exchange markets is that currencies are always traded in pairs. For example, when you see USD/EUR quoted at 1.20, it means that one US dollar can be exchanged for 1.20 euros. The value of currency pairs fluctuates constantly due to various factors such as economic indicators, geopolitical events, interest rates, and market sentiment.
There are three main types of forex trading: spot trading, forward contracts, and futures contracts. Spot trading involves buying or selling currencies for immediate delivery at the current exchange rate. Forward contracts allow parties to agree on an exchange rate today for future delivery of currencies on a specified date. Futures contracts are similar to forward contracts but are standardized and traded on exchanges.
Forex trading offers several advantages over other investment options. It provides high liquidity levels and low transaction costs compared to stock or bond markets. Additionally