What Is Forex Trading?

The term “forex” is a combination of the words “foreign currency” and “exchange.” Foreign exchange is the process of converting one currency into another for a variety of reasons, most commonly for trade, tourism, or commerce. The daily trading volume for FX hit $6.6 trillion in April 2019, according to a 2019 triennial report from the Bank for International Settlements (a global bank for national central banks).

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Definition of Forex Market

Currency trading takes place in the foreign exchange market. Currency is significant because it enables us to buy goods and services both locally and across borders. To undertake international trade and business, international currencies must be exchanged.

If you live in the United States and wish to purchase cheese from France, you or the firm from which you purchase the cheese must pay the French in euros (EUR). This means that the importer in the United States would have to convert the same amount of dollars (USD) into euros.

The same is true when it comes to traveling. Because euros are not accepted in Egypt, a French tourist visiting the pyramids will be unable to pay in euros. At the current exchange rate, the tourist must convert his euros for the local currency, in this case the Egyptian pound.

There is no central marketplace for foreign exchange in this international market, which is a distinctive feature. Rather of trading on a single centralized exchange, currency trading is done electronically over the counter (OTC), which implies that all transactions take place through computer networks among traders all over the world.

The market is open 24 hours a day, five days a week, and currencies are traded in practically every time zone in Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and Zurich, among other important financial locations. This means that when the trading day in the United States finishes, the currency market in Tokyo and Hong Kong restarts. As a result, the currency market can be very lively at any time of day, with price quotes continuously changing.

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