An Introduction to Online Trading with Forex

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Trading on the stock market used to be a portal opened only to the wealthy and big business. Those of us outside of the industry would have to rely on commercial banks and investment banks to have any contact with the stock market world, and then came the internet. With the internet everything changed, including trading on the stock market. Now a regular person, maybe like you, can trade on the stock market online. One of these online trading portals is the well-known Forex trading.

What is Forex?

First a definition of Forex is necessary. Forex, which is abbreviated to FX, is a market that allows you to trade currencies online. It is open five days of the week, and on those days it is open for 24 hours. It is the largest market in the world and has a value of no less than $1.9 trillion a day, which also makes it the leader in terms of liquidity as well. It allows firms, countries or any person to trade on its platform and that leads to it being the largest market in the world in terms of monetary value. It is interesting to note that there is no central marketplace for trading, however participants have to do their trading electronically over the counter.

Ways of trading on forex

If you are interested in trading in the Forex market you need to know that there are three ways of trading. These three are spot market, the futures market and the forwards market. Spot market is the most popular form of trading on forex and is what most individuals are referring to when they are speaking about the forex market. The forwards and futures markets are more popular with companies and firms.

  • Spot market. This is where you buy and sell currencies at their current price. This is a transaction between buyer and seller where the seller provides an agreed currency amount which is bought by the buyer at the agreed exchange rate value between the two. Once the deal is complete, it is called a “spot deal”. This is how the name of the market is arrived at.

  • Future and forwards market. The big difference between these two markets and the spot market is the fact that they do not trade actual currencies. What they trade in is contracts that are representations of a future value of a specific currency. The contracts specify the type of currency, its price per unit and a date of settlement set in the future.

Futures contracts include the number of traded units, the dates for delivery and settlement, and the smallest price changes that cannot be modified. These contracts are traded based on a standardized size and date of settlement on a specific public commodities trading place.

The forwards market on the other hand is traded over the counter between two parties who agree upon terms themselves. So, unlike the futures market where trade value is set by a market, the value is set by both parties.

These is all introductory information on what forex trading is about, and so if you are interested you need to do a little more research before starting. This is necessary because you are dealing with money, that even if it is money you can afford to lose, you would rather not.

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