➤ Types of foreign exchange market I Forex guide for begginers I

➤ How do forex operations work?

When carrying out foreign exchange operations, we must bear in mind that currency prices are denominated in pairs, because in each currency operation one is bought and the other is sold. Each currency is denominated with a three-letter code, such as: GBP / USD or CLP / USD.

The first currency we indicate in the pair is the base currency or main currency. And the second currency in the currency pair denominates currency quoted or contrary. For example, in the case of GBP / USD, GBP would be the base or principal currency and USD would be the quoted currency or the opposite currency.

We must also know that the movement of currencies is measured in terms of points. A point is usually the fourth decimal, for example, a movement from 1.43552 to 1.43562 is a point. The price of the currencies is always accompanied by two prices: sale price (beep) and purchase price (offer). And the difference between these two prices is the spread and it is about the hairpin that the provider charges.

Price beep: price at which we sell a unit of the base currency.
Offer price: price that we pay when buying a unit of the base currency.

Currency types

The types of currencies that exist are:

1. Convertible currency: the convertible currencies are those that can be exchanged freely by others, that is to say, that does not have restriction of control of changes.
2. Non-convertible currency: currencies that are not accepted in the international market.
3. Bilateral currency: this type of currency is used in the settlement of operations between various countries that have signed bilateral agreements.
4. Exotic currency: denominated this way to the currencies that do not have a wide international market.
5. Strong currency: currency that maintains some exchange stability. They are usually countries with low inflation, a strong currency usually represents a strong economy.

Forex market

Forex or Forex market is the market where different currencies are bought and sold. The function or objective of the foreign exchange market is to facilitate the transfer of purchasing power of currencies from one country to another.

Types of currency markets

There are two types of currency markets:

• Cash (spot): if the availability of the currency of the transaction is immediate. It is considered cash for a period of two days.
• A term (forward): when we do not have the currency of the transaction until a period exceeding two days has elapsed.

Characteristics of the foreign exchange market

The main characteristics of the forex market are:

• The oldest financial market in the world
• It is considered the largest financial market in the world
• The forex market is an unorganized market, therefore, the amount and maturity are negotiated without any preconditions.
• 24-hour market, therefore, any currency can be negotiated at any time
• Very liquid market, due to its amplitude

In the forex market, the most traded currencies are: US dollar, Japanese yen, euro and Swiss franc.

How can I trade currencies?

The currencies are part of an over-the-counter market, called OTC. Therefore, the currencies are exchanged directly between two parties without being made in a stock market. The currency market operates electronically through a worldwide network of banks and operations are carried out from anywhere in the world through the provider (bank or broker) you choose.

How can I trade currencies?

The trading hours in the forex market is very broad, it can be bought and sold continuously for most of the week. The exact schedule will depend on our location.


Currencies: The most traded currencies in the world

The main currency pairs traded in the forex market are:

EUR / USD: euro and US dollar
USD / JPY: US dollar and Japanese jen
GBP / USD: Pound Sterling and US Dollar
USD / CAD: US dollar and Canadian dollar
AUD / USD: Australian dollar and US dollar
USD / CHF: US dollar and Swiss franc
EUR / JPY: euro and Japanese jen