What is the Forex market?

What is the Forex market?

    What is the Forex market?
What is the Forex market?
The Forex market (Foreign Exchange, FX) is the largest and most liquid financial market in the world, with a daily trading that exceeds the combined daily trading of all stocks and bonds markets of the world. It allows investors around the world buy and sell currencies through the exchange between buyers and sellers of the same.
When investing in currencies must take into account that currencies are traded in pairs, so that the first currency indicates the number of units of the second currency according to the exchange rate. Thus, one euro trading US dollars (EUR USD) 1.40 indicates that one euro is equivalent to $ 1.40.
It provides an operative with leverage, because when trading in the Forex market will deposit only a percentage of the total amount of the transaction - from 2.5% - in guarantees.
Allow upward invest (buy currency pair) and reverse downward (sell currency pair) on any currency pair, since there are no restrictions on short selling.
The FX market belongs to the category of OTC or OTC (over the counter). It is a decentralized market whose operations are done via the Internet or by telephone.Taxation in the Forex market
Capital gains made operational in Forex are considered for the purposes of income tax on capital gains, which will be integrated into the savings tax base in the year in which they are received along with the rest of capital gains through investment in other products financial. Royal Decree - Law 9/2015 of 10 July 2015 states the following sections of taxation for the year 2016:Futures Taxation

    19% for the first 6,000 €
    21% between 6,001 and 50,000 €
    23% from 50,001 €
Types of operational
There are two types of forex trading operations, depending on the time when the exchange occurs: cash (spot) or forward (forward).Forex trading cash (spot)
The operating spot in the Forex market is a forex trading operation in which the two market players immediately agree to exchange two monetary flows in a different currency.Example operative spot
Example operative spot:
According to the table, we could position ourselves down in the euro against the dollar (selling EUR) to 1.36127 or to position the rise in the euro against the dollar (buying EUR) to 1.36134.
Quote Example 1
Quote Example 2
Suppose we have expectations that the dollar will revalue the very short term against the euro, for example, to higher expectations of rate hikes in the United States.
We could invest $ 1,000 in buy dollars at 1.36127, so that we could buy dollars 1361.27.
If the next day prices have varied, for example:
Quote Example 1
Quote Example 2
We would sell dollars (US $ 1,361.27) to 1.34934, so that we would recover 1008.84 euros.
Therefore, we obtain a profit of 8.84 euros in the operation.Forex trading futures (forward)
The forward operating in the Forex market is a forex trading operation in which the two market players agree at present exchange two cash flows in currencies other than at a later date to spot future date. That is, the two agents acquire an obligation to be met at maturity of the operation.Example forward operational
Example forward operative:
A Spanish company plans to buy within 90 days machinery manufactured in the United States valued at $ 200,000.
At the current exchange rate (1 € = $ 1.3750)the amount of the purchase of machinery would be (200,000 / 1.3750) = 145.454,54 €.
The company looks likely to revalue the dollar against the euro in the coming months, so studying make a forward deal to cover the currency risk of the operation.
After 90 days,the dollar has risen to $ 1.35 per euro. So:

    If the company does not perform any operation to cover currency risk, within 90 days of the actual cost of the operation will be (200,000 / 1.35) = 148.148,15 €.
    If the company had made the hedging transaction:
- Term of transaction: 90 days- Exchange rate EUR spor sale / purchase USD: 1.3750- Swap Points: 50 points- Nominal value: 145.454,45 €- Type resulting change after the operation: 1.3750 to 0.0050 = 1,37

At the end (day 90)the adjustment is made by exchange differences, so the contract seller pays the buyer 2.693,60 €
(1.3750 EUR / USD - 1.3500 EUR / USD) * 145,454.45 / 1.3500 EUR / USD = 2.693,60 €
The company's expectations regarding the evolution of the euro against the dollar have been met, so the rise in the price of machinery from the revaluation of the dollar will be offset by the income derived from the purchase of forward.
The actual cost to the company will be:200,000 / 1.3500) - 2,693.60 = € 145,454.54