If you ever wanted to know how currencies are traded in the world of finance, then you need to understand the business of Forex trading. Exchange of currencies between various nations of the world is an important and integral part of the global financial circle that we now live in.
Did you know that Forex market is even larger than the stock market? Forex trading in the spot market has gained popularity in the past several years because it is the tangible asset on which futures and forwards markets rely upon but which do not actually trade currencies like the spot market does.
Currencies, like the stock market, have a real time exchange price and are traded on the Forex exchange (bought and sold in real time) in the spot market. Forwards and Futures markets only deal in contracts for any particular currency type, a price per unit, and a future date of settlement. In the forwards market, two parties on the OTC buy and sell contracts, and they have to decide on the terms of the deal by themselves.
In the futures market, people can buy and sell contracts based upon a standard size and settlement date on public commodities markets. In every case, it is a binding contract and settlement is generally done during expiration time in cash. Large companies and funds mainly deal with the futures and forwards markets while the retail trader in the forex trading world deals in the spot market only.
Though big corporations use the futures and forwards markets to hedge against any unknown and volatile exchange rate fluctuations, speculators can get involved in the forex trading business as well. When a currency is quoted on forex, there is another currency that it is quoted in relation to, so the value of one currency is made visible through the value of the other currency.