What is Forex Trading?
Even if you don't trade forex yourself, the international currencies market often plays a significant role in your daily life. While the effects of a drop in the stock market aren't always so obvious, a change in your currency's value may affect the price of goods and services. If you've been abroad, you've also likely had to exchange your currency and pay a rate that depends on current forex quotes and rates.
Forex is a unique asset class that differs from stocks, commodities, and bonds. When we dive into what makes it different, it’s plain to see why there is such a large market and need for the truly global forex market.
Forex or FX trading (from foreign exchange) is the purchasing and selling of sovereign currencies and other forex products. When exchanging currencies at a bank or bureau de change, the rates we find are determined directly by what happens in the forex market.
Exchange rate movements are based on a mixture of economic conditions, world events, interest rates, politics, and other factors. As a result, forex is highly liquid and has the largest trading volume compared to other financial markets.
The forex market comprises two main activities: trading facilitating economic transactions and speculative trading. For companies and other entities operating in international markets, purchasing and selling foreign currencies are a must. Getting your funds back home or purchasing goods abroad is a key forex market use case.
Speculators make up the other side of FX trading. Short-term, high-volume trading that takes advantage of very small fluctuations in currency prices is common. Forex is a market full of arbitrage opportunities for speculators, in part explaining the vast trading volume in the market.
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