There are generally two types of exchange rate system, fixed and flexible trading systems.
Fixed systems are characterized by the fact that they are less volatile due to government intervention in the market. For example, central banks can influence the exchange rate movements and the currency of a country, so that not too large deviations can take place.
In flexible systems, the price of the currency is set in the context of supply and demand. In some cases, there is also a middle system, which is considered neither fixed nor flexible, but a kind of system between these main systems. In this, the value of the currency fluctuates within a concrete range.
The concept behind it
The concept of Forex trading is basically simple, it is the exchange of one country’s currency for another country’s currency. Since trading is essentially just buying and selling currency, it is traded and quoted in pairs. The value of a currency depends on the demand for that currency. Different countries have different currencies and for purposes of trading goods or services, it is inevitable to have the currency of that country. Traders take advantage of this need to profit and if possible make a large profit from the differences in the value of the currencies. Trading of the currency is usually shown in pairs and the rate at which they are exchanged is called the exchange rate. Currencies are exchanged 24 hours a day, six days a week, which makes currency trading very volatile.