Before the explosion of the internet, trading on the foreign exchange market (forex) was exclusively in the realm of governments, hedge funds and large corporations. Now, it is all online and investment companies are offering this opportunity to individual investors. Investors no longer need to make a trip to the foreign exchange kiosk, they can do all their trading from their phones, laptops, tablets or other electronic devices. Money does not need to physically change hands.
What is forex?
The forex market is the global marketplace where trading is available in one nation’s currency for another. It is the largest market in the world and trades in the trillions without a centralized location or government body to monitor it. It is an electronic network of institutions, banks, brokerage firms and individuals who trade online.
How to trade currency internationally
If you are an individual who would like to start trading forex, you can look for an online company that specializes in foreign trades. In most cases, you will have the opportunity to practice using a demo account before you make a real investment to get your feet wet. One example of an online organization that can help take the confusion out of trading internationally is forextraders.com who specialize in forex trading in Kenya. Kenya is making an economic comeback after the pandemic and many individual traders are enjoying the opportunity to profit from that comeback.
Traders perform forex transactions in one of three marketplaces: the spot, the forward and the futures market.
The spot market
This market is the simplest and most direct for forex trading. It is based on the current exchange rate. A trade on the spot market is an agreement to trade one type of currency for another at the current spot rate. It usually takes 48 hours to finalize a transaction, but the price is established on the trade date.
The forward market
The forward market trades in transactions that are further in the future than the spot market. The price of the trade is a combination of the spot market rate plus or minus the forward market rate, which should represent the difference in rate between the two currencies.
Forward trades mature in a year or less, although longer terms may be possible. The price of the trade is set on the date of the transaction, but the money doesn’t change hands until the maturity date in the future.
Forex futures are traded on an established exchange, such as the Chicago Mercantile Exchange. The contracts set out in the futures market have an exact date and price which the buyer and seller agree to. This type of trade is used most often by corporations who do most of their business overseas and want protection against a severe currency fluctuation.
Whether you are new to trading or want to expand your portfolio to include the international market, trading forex is accessible, simple and open to all investors.