Forex trading is the means through which one currency is changed into another. When trading forex, you always trade a currency pair—selling one currency while simultaneously buying another.
Each currency in the pair is listed as a three-letter code, which tends to be formed of two letters for the region, and one for the currency itself. Quite simply, the global financial market allows one to trade currencies.
If you think one currency will be stronger than the other, and you end up correct, then you can make a profit.
What is the forex market?
The foreign exchange market, which is usually known as “forex” or “FX,” is the largest financial market in the world.
The FX market is a global, decentralized market where the world’s currencies change hands.
Due to the wide range of market participants, including central banks, financial institutions, corporations, hedge funds, and individual traders, exchange rates change by the second so the market is constantly in flux.
The three different types of forex market
- Spot forex market: the physical exchange of a currency pair, which takes place at the exact point the trade is settled – ie ‘on the spot’ – or within a short period. Derivatives based on the spot forex market are offered over-the-counter by dealers like tastyfx.
- Forward forex market: a contract is agreeing to buy or sell a set amount of a currency at a specified price, and to be settled at a set date in the future or within a range of future dates
- Futures forex market: an exchange-traded contract to buy or sell a set amount of a given currency at a set price and date in the future.
Forex trading is the means through which one currency is changed into another. When trading forex, you are always trading a currency pair—selling one currency while simultaneously buying another.
Most forex transactions are carried out by banks or individuals by seeking to buy a currency that will increase in value against the currency they sell. However, if you have ever converted one currency into another, for example, when traveling, you have made a forex transaction.