Over the years people and nations have developed tremendous interest in the exchange of foreign currencies around the world so you ask yourself, what is forex trading? Forex trading is the buying and selling of currencies around the globe. This is quite different from stock trading as this is done in an over the counter (OTC) market. This means you trade in a number of currencies available across the world.
One of the participants of forex trading is government and central banks. They are mostly involved to maintain their foreign reserves. If a government wants to raise its volume of exports, it will most likely sell its currency on the market to increase the supply of their currency. This will then lead to depreciation in the country’s currency making its exports cheaper. Another player in the forex trading market is banks and financial institutions. They are mostly active in the interbank settlement when probably there is a transfer from one bank to a foreign bank. They profit from the spread between the bid and asking price. Every commercial bank in the world has a correspondent bank in another country where it routes its transfers of foreign exchange. This facilitates the operations of forex trading.
Also on the forex trading platform are retail forex trading brokers who can also be on the internet. Through these people individuals who have small capital can enter the forex trading market to make profit. These brokers usually provide you with technical analysis items, news bulletins and tutorial books to help you understand the market better. They will also give you demo accounts for you to do a test trading on the platform beforehand. One must be extra cautious in searching for an online forex broker as there are a lot of scammers out there.
There are also a few terms to make us better answer the question of what is forex trading? There is the cross rate which is the value of one currency in terms of another foreign currency. For instance, when you see 1.41 EUR/USD, it reads as 1 Dollar is equal to 1.41 Euros. Here it is the euro that is been valued and not the dollar. We also have the bid-ask spread. The bid is the cost price of the dealer while the ask is the selling price of the dealer. The difference between these is the spread or the profit generated.
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