An Introduction to Forex Trading
There are three ways to trade foreign currency, namely spot market, forwards market and futures market.
Spot Market
In a spot market, currencies are bought and sold according to the current price. This current price is determined by supply and demand. It is dependent on many things like current interest rates, economic performance, sentiment towards ongoing political situations. Accordingly, a perception of the future performance of one currency against another is determined. The deal continues till it is closed. The value of the deal increases and decreases according to the current price. When the deal is closed, it closes at the current price at the moment. When the deal is closed, it gets liquidated and the equivalent price is given to the person. Finalising a deal is known as spot deal.
Forwards and Futures Market
The forwards and futures markets do not deal with the current price of a currency. They refer to the contracts relating to some future date and specific price. They are often used to reduce the risk.
Forex market, now-a-days, refers to the spot market because with the adven of internet, it has the highest potential to earn. When people say forex market, they are actually refering to the spot market.
In the further chapters, we will also be referring to the spot market.
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