Cash market

The cash market is the marketplace where currencies are bought and sold at current prices. The price depends on supply and demand. It is subject to numerous influencing factors such as economic performance, interest forex brokers with bonus in south africa rates or political stability. There may be a maximum of two banking days between the conclusion of the transaction and the execution. At that time, the seller delivers the corresponding foreign currency to the agreed account and the buyer pays in the agreed currency. Because of the electronic commerce, this is usually very quick. Transactions on the cash market are also called spot transactions.

Futures market

On the other hand, no actual forex trading in nz are traded on the futures market. Instead, contracts are traded that guarantee claims to a currency at a specific price at a specific point in time. Forward transactions can be concluded for a period of at least three days up to more than a year.

Regardless of the price development, the contractual partners must meet their obligations by the due date. Mainly large, international companies use these forward transactions in the form of forwards or futures to hedge against future currency fluctuations.

Forwards are contracts, the content and conditions of which are freely negotiated between the contracting parties. The contract content of futures, on the other hand, is determined and standardized by the exchange on which they are traded. Both types of contract are of course binding, even if trading in the contracts is possible before the end of the term.

The opportunities and risks of the forex market

The factors trading volume, volatility and the global structures are reasons for the success story of the foreign exchange market in recent years. Due to the high liquidity that prevails on this financial market, it is possible for individual investors to place very large trades without significantly influencing the exchange rates. As a result, there is fairness in the market because prices are created by supply and demand, but cannot be manipulated using individual large positions.

In addition, the high liquidity on top forex brokers in australia influences the informative value of the technical analysis. A large number of speculators therefore trust chart analysis when trading currencies and act very precisely.

While the market per se already reveals advantages, the trade can also come up with plus points. Thanks to the leverage effect, it is also possible for private investors to hold large positions of, for example, 50,000 euros, even though they have only deposited 1,000 euros of trading capital as margin with the broker.

Leverage is of course a double-edged sword. By using large leverage you can increase your profits, but at the same time the possible amount of losses increases if the prices run against you. Despite the risks that come with it, the leverage effect is precisely the reason why so many speculators participate in forex trading.