Forex Trading Market Introduction
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One distinctive feature of this Forex market is that there is no central marketplace for foreign exchange. Forex trading is done electronically OVER THE COUNTER (OTC). OTC means, all transactions occur through computer networks between traders around the world. Currencies are traded internationally in the major financial centers of New York, London, Singapore, Tokyo, Frankfurt, Zurich, Paris, Hong Kong, Sydney and across almost every time zone.
FX market operates 24 hours per day. This market can be extremely active any time of the day, with price quotes changing constantly.
Forex trading is done in three ways:
1. Spot Market
2. Forwards Market
3. Futures Market
1. Spot Market ( or) Cash Market (or) Physical Market:
On the spot transaction of buying and selling of currencies of different countries at current market prices can be termed as spot forex market. Spot FX market has a 2 day delivery date, as time is required to move cash from one bank to another. The exchange market price depends basically on supply and demand which in turn depends on numerous factors like current interest rates, domestic and international political factors, economic performance, and perception of future performance of one currency for another.
2. Forwards Market (or) outright forward currency transaction (or) forward outright (or) FX Forward:
Forwards will not operate on current market prices. A forward in exchange market locks a price for currency which can be bought or sold on a future date. It will be an obligation for contract holders to buy or sell the specified quantity of currency at the particular price on particular future date. Most important feature of forwards is ” these forward contracts cannot be transferred”. In simple the exchange rate of currencies is fixed now for a future exchange of currencies.
3. Futures Market (or) Currency futures:
Functionally Forex forwards and Forex futures have similarity of buying or selling currency for a given date, with specified quantity and specified time period. Futures are generally operated by speculators and Forwards are by the hedgers. Usually futures are closed before the maturity but delivery never happens.
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