In this article we will see point such as what is mean by Forex Market? Also who are involved in Forex Trading? And how to trade in Forex Market?

So, let’s understand why we need Forex Market

As we all know, before money was invented, people were using goods and services for other goods and services in return. After that money is invented which made trade easy. Nowadays people are using Money for buying and selling goods and services. And that’s how Forex Trading begins. Each country has its own Currency For Example: India has currency name as INR, US have Dollar, Japanese Yen And European Pound.

So, let’s understand what is mean by Forex Market first with an example

If One who belongs to India wants to travel in USA for his business purpose or vacation purpos,then one can spend some money in USA in return of goods and services but how can one spend his money in USA because one have Indian Currency in his pocket which is almost like meaningless in USA or any other countries. So does that mean one can’t survive in other countries other than India? “NO”, there is solution which is nothing but Forex Market

In Forex Trading one can Exchange his currency with other currency. In above example one can exchange his currency from INR to US Dollar before going to US and spend money for goods and services as per his wish. So, this is all basic about Forex Trading

Now let’s understand how we can trade in Forex

As we trade in share in stock market similarly we trade in currency in Forex Market. In Forex Trading basically there are currency pairs like USDINR, EURUSD, and USDJPY etc. and we trade in those currency pairs. Each Country has its own currency as shown in above figure.

If we compare one currency with other currency, then one can find there is difference between those values which we call as SPREAD in Forex Market. For example, If we compare USDINR then as per current situation one who belongs to India have to pay almost 70 rupees for 1$ Dollar. So one may think why suppose to pay such huge difference and who and how they decide such types difference between two currency. So let me tell you that difference is depend on number of things such as GDP growth rate, Purchase, Import export policy and Debits of that country. As shown in following figure

Now let’s see who involved in Forex Trading?

As you can see in above figure Forex Trading involve BANK, IMPORTER and EXPORTER and SPECULATORS now let’s understand them one by one. In case of BANK they must have to maintain FOREIGN RESERVE. So let’s understand first what is mean by foreign reserve step by step with example. So, let’s take example of India. India can't produce all goods. So it is needed to import some goods from other countries like Crude Oil, Natural Gas etc. one can see in 2018 only we import 33% of Crude Oil only from Saudi Arabia. So in return we can’t pay in term of Indian rupees to Saudi Arabia for Crude Oil. We must have to use Dollars instead of INR in this transaction. And here BANK Play important roles they maintain stock of other currencies also which can be used in future for such types of trade this is nothing but FOREIGN RESERVE.

So next is IMPORTER and EXPORTER. So in this case Shopkeepers and wholesale retailers import and export Goods and services with other countries. So they need to pay and accept money in term of those respected currencies only so that they can spend that money in their own countries. For that purpose they need to exchange those currencies accordingly and that’s how they involve in Forex Trading.

Next is SPECULATOR. Basically they did those own study about Forex Market. And follows those own theory to trade in Forex Market but success ratio in it is almost 1:10(we will discuss such point in my next blog) So, this is all about Forex Market. In next blog we will focus on point such as is it secure to invest in Forex Trading or not? And finally shall we invest in Forex Trading or not?