All the currencies are traded in the forex exchange market. Its primary job is to exchange one currency for another. For conducting any type of foreign trade and business, currencies are needed to be exchanged. Let’s just consider an example, if you want to buy cheese from France but you live in the USA. what will you do? either you or the company which buys cheese from France will toll the currency. The French will be paid in euros. This entire transaction implies that U.S. importer will exchange US Dollars into Euros. Similarly, in the case of tourism when a person visits another country they need The currency of that country to buy anything or use any service. They will need the locally accepted currency. They will need to exchange their currency for any transaction.
Another interesting fact about this foreign exchange trade is that everything takes place over the counter electronically. All trading can be done digitally via a computer network between all the traders around the world. This doesn’t need anyone centralised exchange platform.
When we compare the two, the stock market and the Forex market. we come to know that the forex market is relatively new. in forex, people exchange one currency into another for earning profits out of this trading. forex has been around since the beginning. when the minting of currency started we can say forex started. But, modern forex trading is slightly different from the older ways. when the Bretton woods accord was signed, in 1971, many major currencies were allowed to float freely. The value of individual currency varies. these variations help in the rising number of foreign exchange services and trading.
There are the types of market- spot market, future market and forward markets.
the spot market is having the majority of traders because it is the underlying real asset upon which the forward and futures markets are based upon.
the spot market runs based on the current price. here the currencies are sold and bought according to the current price. The price is determined by the supply and demand and is a reflection of many things like current interest rates, economic performance, the sentiment towards ongoing political situations (both locally and internationally) also matters, as well as the perception of the future performance of one currency against the other.
So, in the case of forwarding and futures markets the trade doesn’t take place in actual currencies. They rather deal in the contracts which represent their claims to a certain currency type, and a specific price per unit along with a future date for settlement.
When we see the trend in forwarding markets. Here, the contracts are bought and sold over the counter between two parties. These parties determine all the terms of agreements between themselves.
Note that whenever you see the terms: FX, forex, foreign-exchange market, and currency market. These terms are synonymous all mean the same referring to the forex market. Undoubtedly, it is the fastest-growing market even in present times.
