What is forex and how is it traded?

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What is forex and how is it traded?

Dec 19, 2023

Forex is among the many trading instruments offered at KCM Trade. If you're curious to know more about what makes it tick, we'd be delighted to share some fundamental details.

What is forex?

Forex is short form of foreign exchange; which means exchanging one currency for another for a variety of reasons, usually trading, commerce or tourism. Currency values are always changing, which means 1 US dollar today may not get you as much in your local currency as it did yesterday, or even will tomorrow. This is where changing exchange rates can lead to profit or loss.

Let's take a look at an example to better understand how forex traders make profit from the fluctuations in currency exchange rates:

Assume a person goes to a currency exchange to convert USD 100,000 to euros. If the rate of exchange (USD/EUR) at that time is 0.84000, they now have EUR 84 000. After a few days, the rate of exchange has dropped to 0.80000. On exchanging the euros to US dollars, they now receive USD 105,000.

Thus, this person has made a profit of USD 5,000 from this transaction.

Forex traders study the economic and political conditions and predict the trend in which the market is going to go and based on that, they either buy or sell a currency which they later sell or buy back respectively. In the aforementioned example, the person making the exchange knew that the rate of exchange was going to decrease. Thus, he sold his dollars only to buy them back at a later point when the exchange rate had fallen. This is how he made a profit.

This is forex trading.

In KCM Trade we offer CFDs (Contract for Difference), which means that clients can bid on the difference in price of any currency/instrument available in the market. With the use of leverage, clients can trade in big amounts without actually being in physical possession of the said currencies.

Understanding the forex market

The market where foreign exchange transactions are carried out is known as the forex market. It is an international market where transactions are carried out electronically over-the-counter (OTC) via computer networks between traders around the world, rather than on one centralized exchange.

Features of the forex market

The forex market has a daily trading volume in excess of USD 5 trillion. No commodity market, futures market or stock exchange equals forex at present.

Forex trading occurs around the clock, Monday through Friday. The forex market makes it possible for a currency to be bought and sold by various market-maker banks, brokerage companies, independent brokers, investors, and traders.

Quotes (or prices) are in perpetual motion and react to many trading, economic and other indicators, interest rates, bank operations, the time of day and the preferences and expectations of traders.

Client transactions are executed over easy-to-use trading platforms such as MetaTrader 4 or MetaTrader 5. With the help of such platforms, every trader can receive quotes in real-time mode from market participants, such as banks and market makers.

KCM Trade is a multi-asset broker that offers high quality trading services to clients all over the world. It provides a convenient platform for carrying out these transactions and also offers a very low spread which is always a win for the forex trader.