top forex brokers vietnam

Understanding Foreign Exchange

Foreign exchange is basically about foreign currency and exchange. It is a process of changing the currency of one country into the currency of another. For instance, the exchange of US dollars for the Japanese Yen. The reasons people exchange currency are such as buying and selling internationally, tourism purposes, and also trading. The trading of currencies are always listed in pairs (the base currency and the quote currency), therefore the term currency pair. 

top forex brokers vietnam

The forex market is often considered as the most liquid market in the globe. This is because trillions of dollars are being exchanged daily in the forex market. The trading of foreign exchange takes place in an over-the-counter market, where financial institutions like the bank, independent dealers and forex brokers (see top forex brokers vietnam) negotiate directly without a central exchange as compared to the stock market globally (e.g. NYSE, London Stock Exchange, HKEX).

Trading in the Foreign Exchange Market

Since forex is about exchanging currencies all around the world, the market is open 24 hours a day, 5 days a week, unlike the stock exchange market where it usually opens around 9am and closes around 4pm (time varies among different countries). This also means that you can buy and sell currencies at any hour of the day. 

In the modern world that we’re living in today, forex is made accessible to almost everyone. More and more trading companies are making it simpler for people to trade in the forex market. A good example of this is the development of mobile apps. Whenever you want to trade, all you need is a smartphone and an Internet connection. You can even monitor the exchange rates in real time before deciding on what currency pair you are going to invest your money in.

Financial Instruments

In foreign exchange, there are a few types  of financial instruments. Financial instruments are basically the monetary contracts between parties that are involved in forex trading. First of all, the foreign exchange spot. A spot transaction is a two business day delivery transaction, except for currencies like US dollars and Canadian dollars. Spot transaction is one of the most common types of forex trading, has the shortest time frame and it is like a direct exchange between two currencies. Cash is usually involved in spot trading, rather than an actual contract.

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Next, we will take a look at the forward transaction. Forward transaction is less risky compared to spot transaction. This is because there will be an agreed transaction date between buyer and seller set in the future where the price of the exchange will be decided. The money will then change hands on a maturity date. The duration of the trade can be a day, a month or even a year.

Another similar transaction to the forward transaction is known as futures. They are a standardized version of forward contracts. Futures transactions can include any interest amounts. As compared to the forward transactions, the contracts of the futures transaction are more specific in the sense that a standard volume of a particular currency is agreed between parties to be exchanged on a specific settlement date.

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