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How Forex Trading works?

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Forex is the short form for Foreign Exchange which means the transfer of transactions from one currency to another currency. It can also be stated as a network of buyers and sellers which includes individuals, companies, and even central banks which intend to transfer currency between each other at a price agreed by both parties. 

Keeping it simple, you need to make a Forex Transaction before traveling abroad as the currencies differ from one country to another. The currency conversion or Forex trading is most used to earn profit although we may come across the applications that have practical purposes.

Nevertheless, some currencies become insanely volatile at times due to the amount of currency converted every day. Volatility is the main reason why most people are attracted towards forex i.e. to make a profit although there are high chances of risks as well.

Now that you are here, it is most likely that you have at some point come across the profits in Forex and are curious to learn more about it. Well, you have landed in the best spot as we can ensure you that you will return with complete knowledge about the working of Forex Trading. So, let’s dive in!

Types of forex market

Forex market is handled by an international network of banks and 4 trading centers in different time zones which are London, New York, Tokyo, and Sydney. And, there are 3 different types of forex market namely

  • Spot Forex Market: – As the name suggests, this market is about the exchanging of a pair of currency at the exact point of time when the trade is settled. 
  • Forward Forex Market: – It is more of a contract between both parties with a fixed amount of currency at a pre-decided price at a pre-decided point of time in the future. 
  • Future Forex Market: – It is a legally binding way of exchanging the currencies between both parties at a specific time with the specific amount of currency as in the agreement. 

As there is no central timing for the exchange, one can do Forex Trading all 24 hours, unlike stock markets that work with central times and are not available all the time. 

Working for Forex Trade

Forex Trading works similar to any other buying and selling of securities and stocks. But the two major differences are 24 hours availability and the trade done in pairs. You can find the trades like EUR/USD or JPY/GBP to buy or sell on a specific platform. 

Speaking about platforms, you need to choose a platform that is readily available these days in the form of websites and applications. Those platforms serve as a medium or a broker for you to trade different currency pairs you are interested in.

By trading in either of the currencies, you are selling one currency and buying another. Thus, you will get a profit if the price of the currency moves up against the currency you sold. Well, choosing the currency pair is what the trading skill is all about. 

You can choose a specific currency pair by making an analysis or using the trade signals from your chosen platform. Once a currency pair is chosen, you will enter a chart conveying the rise and fall of the price of the currency pairs so that you can predict the upcoming trend. 

Several tools like are available on popular platforms. These tools summarize multiple data gathered from multiple resources to make and convey the future or upcoming predictions to both parties. But, the signals from these tools are just predictions and nothing can be confirmed until there is a massive change in the upcoming trend.

Furthermore, one needs a specific trading strategy to make the trade work in the favor irrespective of the ongoing trends. One of the major reasons behind many traders losing in the currency market is the lack of proper strategy. 

The framing of strategy begins from choosing the currency pair based on their volatility. Some strategies work best in the most volatile currency pairs but fail in less volatile ones and vice versa. Pro traders with years of experience in Forex Trading can earn profit in both scenarios as they apply a proper strategy based on volatility and several other factors. 

With all this information, you can indeed start trading, but you will be equally exposed to risks besides the possible profit. So, it is crucial to start learning about the market and strategies before you dive into Forex Trading.