Foreign Exchange trading is the trade of currencies. There are two types of foreign exchange trading: retail and institutional. Different types of trading offer different levels of access to different instruments. Certain types of trading are more risky than others. This is why is important to understand previously all the terms related with this investment, such as the FX Hedging Policy.
Foreign exchange market is a global, open-access, decentralized market that allows you to buy, sell and exchange currency at current rates. It allows you to compare rates for currency transactions.
There are several levels of access to foreign exchange markets. The interbank market is by far the most popular. This market is made up of the largest commercial banks and securities dealers. Spreads at this level are extremely thin and not visible to anyone outside the inner circle. As you move down the levels of access, the spreads become larger because of the volume involved.
Foreign exchange instruments are used on international financial markets. Foreign exchange swaps are the most well-known. They involve borrowing one currency at an initial date and then exchanging it at a later date. Another popular instrument is spot trading, which involves trading currencies at their most current rate. Other instruments include outright forwards, which are contracts between two parties to deliver or pay for a specific amount of a currency at a future date.
Money market instruments
Currency exchange rates tell you how much one currency is worth in another currency. They are determined using the current rates and can be affected by economic and political conditions in a country. Central banks purchase and sell currencies in order to influence their currency values. These financial instruments are typically traded on futures, options, and swaps markets.