In simpler terms, Forex trading implies to the trading of one currency to another. It is an international trade and the main currency used for forex trading is the US dollar.
Consider this example for an easy understanding. Companies buy goods from other countries for which they will have to buy the local currency first. The company needs a platform where they can exchange the currency. And that platform is a foreign exchange market. Here when the company exchanges huge amounts of money, the value of the local currency increases due to an increase in demand. As demand increases, the rate increases. This is how the forex market works and the exchange rate changes continuously depending upon the demand.
Who all participate in the foreign exchange market?
The major participants in the foreign exchange market are commercial banks, foreign exchange brokers, central banks, multi-national companies, individuals and other small businesses.
- Among these participants, commercial banks are the largest contributors to the forex market. They function at retail and wholesale levels assisting in foreign exchange.
- The forex brokers are the agents mediating the process. One of the examples is the HotForex broker. The HotForex broker review (รีวิวโบรกเกอร์ HotForex, which is the term in Thai) was observed to be positive and the clients were extremely satisfied with the reliability, wide range of services, quick and smooth trading and stability.
- The central banks of various countries are the other key players in the forex market whose role is to make sure there are no fluctuations in the exchange rate of the currency.
- The MNCs that import and export goods and services are involved in forex trading. The exchange may be to pay or to receive the cash.
- The individuals and small businesses constitute a very small portion of the forex market but play an important role.
What are the benefits of foreign exchange trade?
- The forex market is an ever-growing market and is known as the largest financial market.
- The market is not regulated by any authority, which means that market does not belong to one person. Instead, it is for everybody.
- The opening hours of the market are the greatest advantage. The market is open round the clock.
- Large profits can be gained once you understand how to work with it.
- Liquidity – quicker and easier transactions.
- Volatility – huge amounts of currencies are traded for every second.
- The low transaction costs can result in great profits.
- The forex market will never experience a downfall under any condition. You can trade well even in high and low conditions.