Trading means exchanging one product for another, and has been around since the dawn of time. The process of goods’ exchange dates back to the late Babylonian period, long before currencies, or the foreign exchange market.
A financial market today can be defined as an intermediary space, where buyers and sellers are brought together for the purpose of trading assets, which are, of course, way more than just currencies today. From crypto to stocks, shares and commodities – the choice are numerous, and so are the ways to trade every asset class.
As mentioned above, although Forex refers precisely to currencies, the trading arena is also filled with other assets of choice. Stocks, commodities, indices and cryptocurrencies – you name it. Each of these is referred to as an asset class, since it groups together financial instruments with similar characteristics.
Currency trading is done in pairs. Currencies are pegged against one another, with one being bought and the other sold. The most common pairs include EUR/USD, GBP/USD, USD/JPY, but the selection is vast. Traders make their predictions on which currency will rise and which will fall, based on a collection of technical (indicators, charts) and fundamental (economic events, news) analysis.
The currencies market operates 24 hours a day, excluding weekends and have a total of three trading sessions: US, Europe and Asia. Trading schedules differ based on country and currency.
Unlike currencies, cryptos are handled by a digital ledger, versus financial institutions. This digital ledger is known as the blockchain, which is decentralized. This means that there is no financial authority that oversees the operations. Instead, the blockchain uses protocols to validate and encrypt transactions.
Numerous cryptocurrencies are available for trading, with the most common ones including Bitcoin, Litecoin, Dash, Ripple, Ethereum, Monero and Stellar. The high volatility of cryptos is what makes them appealing to investors, while at the same time posing the logical share of risk.
The commodities market is generally separated into soft and hard commodities. Soft commodities include products of natural and industrial growth (coffee, cocoa, sugar, corn, wheat, rubber etc.), whereas hard ones are comprised of metals and energy products (gold, silver, oil, natural gas etc.)
The main driving forces behind this market are supply and demand, as well as political and economic events, or even the weather, which can lead to supply disruptions, tax increases and other consequences.
The stock exchange came to be when companies started to go public. The main reason companies do so, is in order to raise financing for further expansion. Stock fluctuations depend on a company’s financial standing, the economic and political environment, forecasts on future profitability, statements from company officials, as well as a variety of other factors.