The forex market is an over the counter or global market for the trading of foreign currencies. This marketplace determines international exchange rates for each currency. It includes all financial aspects of purchasing, selling and trading currencies in current or predicted market prices. Forex traders to buy currencies hoping that they will increase in value and eventually make them more money than they sold them. When a currency’s value drops, the trader makes some profit because his broker made a profit when he bought it.
Forex is not the only global marketplace that determines international trade. It also involves the London market and the American markets. Globalization has changed the way that many companies determine their foreign currencies and where they purchase them from. Prior to globalization, companies would obtain their foreign currencies in the local markets where they traded.
One of the biggest differences between the currency market and the spot market is the liquidity factor. In the currency market there is always someone selling for you, meaning that there are plenty of buyers and plenty of sellers. In the spot market, on the other hand, you are more likely to find someone selling for you and nowhere to buy from. The number of buyers and sellers on the forex market is much smaller, creating a more even supply and demand dynamic.
Another difference between the currency futures market and the foreign exchange market is the execution. In the forex market orders are executed by foreign exchange experts and sent to execution brokers who then perform the transactions for their clients. On the spot exchange, the transaction is usually executed by the buying trader and sent to the selling trader. Some more blenders serve as middlemen and do the actual transactions between the buying and selling traders themselves.
The Forex blenders who provide this service are referred to as dealers. They buy and sell their Forex futures contracts and then send their orders to the actual Forex dealer who will then place the orders for their clients. These brokers are very useful in that they can provide real time quotes and instant confirmation. This means that when a customer places a buy order, the order will be executed immediately by the broker and then placed onto the appropriate Forex market category, whether it be USD EUROS or whatever.
Now that we have covered the basic differences between the two asset classes, let us take a look at the similarities between the two as well. Both the Forex futures trading are primarily leveraged and both involve high risk factor. Also, both involve trading currencies one at a time, and both allow for considerable free trade, although with different time periods within which to trade. Overall, there are many things that make Forex trading stands out above its competitors, and hopefully this article has given you some insights into why Forex trading is so lucrative.
