Forex trading is always a hot topic among investors. Currently, besides markets such as stocks, commodities or crypto, Forex can also be an ideal trading market for small traders. With only a small initial investment capital, in a short time, it can create attractive profits. So what is Forex? How does it work and how to trade Forex? Let's find out with CPT Markets in today's article!

What is Forex?

Forex is an abbreviation of Foreign Exchange (or FX), which means the exchange of international currencies. To simply understand what Foreign exchange is, it means two currencies from two different countries are exchanged at a certain agreed exchange rate.

The Forex market is also the largest financial market in the world with a daily trading volume of up to trillions of USD and is open 24 hours a day, from Monday to Friday every week.

Starting on Monday morning in New Zealand, Tokyo and Singapore, then London and finally New York. That's why global news and events always affect this market 24/5 and create countless opportunities for retail traders.

Besides, the exchange value on the foreign currency market is also many times larger than on conventional stock exchanges. Take for example the New York stock exchange, with a daily trading volume of only about 26 billion USD, this number in the Forex market is more than 5000 billion USD.

The reason for this extremely large difference is because this is where the exchange and trading activities of all countries in the world are carried out. The participants of this market are very diverse including Central banks, Commercial banks, large trading companies, financial funds and individual traders.

How is the Forex market formed?

According to research by the CPT Markets team, the foreign exchange market began in ancient Mesopotamia, about 5000 BC. When people began to settle down and cultivate crops, it led to the exchange of wheat, livestock and handicrafts. Gradually, people began to use coins, with the Lydian Empire (around 600 BC) being the country that issued the first metal coins, making transactions more convenient.

As international trade developed in the late 16th century, everyone realized that currencies in different countries would have different weights and therefore would carry different denominations. This led to a shift to paper money that could be converted into gold held in banks to provide many benefits for trade and finance.

Specifically, around the mid-19th century, people adopted the concept of the "gold standard", meaning that people could exchange currencies based on their rate relative to gold. However, over time, concerns arose about whether some countries could maintain the right amount of gold to back their currencies, leading to the following series of events:

• In 1944, the Allied nations signed the famous Bretton Woods Agreement, establishing the International Monetary Fund (IMF) and declaring the US dollar and the British pound as the two international currencies.

• In 1971, many countries abandoned fixed currency exchange rates. Two years later, the Bretton Woods system collapsed.

• In 1976, gold no longer accounted for most of the currency's value. Exchange rates began to function based on the market laws of supply and demand.

• In 1985, the Plaza Accord was signed, marking one of the largest coordinated interventions by central banks in the currency market. At the same time, this agreement also lays the foundation for the exchange rate adjustment mechanism and the future development of the Forex market.

• Then, since 1990, the Forex market became available not only to large financial institutions, but also to private investors and traders. About five years later, in 1995, the field began to expand its activities on the Internet.

How does the Forex market work?

The Forex market operates as a decentralized structure, without a financial center or trading center, is an interbank market, and is based on electronic transactions of a system connecting banks with each other, operating 24 hours a day.

Components participating in the trading market are divided into 5 categories as follows:

  • Traders: Including commercial organizations, banks, individual investors and professional traders.
  • Currencies: The foreign exchange market involves many different currencies of countries around the world.
  • Exchanges: This is where foreign exchange transactions are carried out. Forex trading platforms can be physical or electronic trading platforms.
  • Currency derivatives and futures contracts: Used for investment or to hedge foreign exchange risks.
  • Supervisory organization: Includes state agencies, relevant ministries and the State Bank. The State Bank shall announce and decide on the exchange rate regime and exchange rate management mechanism. The supervisory organization shall be responsible for organizing, managing and developing the foreign exchange market.

It can be said that forex traders are present all over the world. The Internet helps us to check quotes of many different currency pairs from brokers and major global financial centers are the giant forex markets.

So how to trade Forex?

There are three ways to trade the forex market: spot (cash), futures, and options. Forex trading in the spot market has always been the largest market because it is the real asset on which the forward and futures markets are based.

Unlike spot markets, forward and futures markets do not trade actual currencies. Instead, they trade in contracts that represent claims on a specific currency, a specific price per unit, and a future date for settlement.

In the futures market, contracts are bought and sold OTC between two parties who determine the terms of the agreement between them. Typically, large international corporations use these markets to hedge against future exchange rate fluctuations, but speculators also participate in these markets.

With the advent of electronic trading and numerous forex brokers, the Forex trading market has seen a dramatic increase in activity and is now the preferred trading environment for individual investors and speculators.

Where to open forex account?

It is a fact that Forex trading is a very attractive job although very difficult. The more attractive the market is, the more people participate. Taking advantage of the above, many organizations and groups have devised tricks and used forex as a fraud tool to prey on greed.

Thereby, helping CPT Markets emerge with transparency and a stable platform, becoming the Forex broker of choice for longtime traders. CPT is currently serving about 350,000 global traders with over 100 million USD in customer assets, providing you with the most advanced and outstanding trading experience.

Let's start your trading journey with the following options:

  • Classic Account: No initial capital requirement, for beginners and everyone, including occasional traders.
  • ECN account: Starting from $1000, for experienced traders who require extremely low spreads for day trading.
  • Prime account: Starting from $1000, for professional traders, including Dedicated Account Manager.

Let's get started today

Forex investing for many people is not only a profession but also the best way to make big profits in a short time. The profits obtained from Forex trading are actually much higher than the inflation rate or bank interest rates and Forex investors can make a very high income when trading at reputable Forex floors.

Profits are earned regardless of market trends. Because you can trade on the Forex market regardless of whether the exchange rate increases or decreases when you hold both the right to buy and sell any currency.

Additionally, the Forex market is also a safe place, protecting investors from fluctuations in economic crises. If a crisis occurs, the stock market can completely collapse, but forex trading will still proceed normally as if nothing had happened.

Opportunity to make money continuously all day on Forex Because the market is open 24 hours, 5 days a week, you can open trades and make profits at any time. Moreover, trading can now be done anywhere. You only need a computer, a phone, Forex trading has become easier and more suitable for everyone than ever.

We hope that through this article, CPT Markets has brought you useful information about the Forex market. This is where countless opportunities can be created for you. So begin your trading journey today!

Source: Finance Magnates