Understanding Forex Trading.

Understanding Forex Trading

" Or" FX market "is the largest financial market in the world , with an average daily turnover of over U.S. $ 1 trillion - . 30 times larger than the combined volume of all U.S. equity markets The word FOREX is derived from the words foreign Exchange.

Spot and forward exchange

Forex trading may be for spot or forward delivery . Spot transactions are usually undertaken for an actual exchange of currencies - delivery or settlement - for a value date two business days later.

Transactions in futures carry a delivery date in the future , sometimes up to a year or more . By buying or selling on the market before , it is possible to protect the value of anticipated foreign currency cash flows , in terms of its own national currency of one of the volatility of exchange rates .

Difference between currency and exchange

Anyone who has traveled outside their country of residence would have had some exposure to currency and currency exchange .

For example, if you live in the United States and traveled to, say, London, England , you exchanged your home currency is U.S. dollars for sterling. British books are considered a foreign currency and the act of exchanging your U.S. $ exchange for the British pound is called abroad.

The foreign exchange market

Unlike some financial markets, the forex market has no single location as it is not processed through a floor . Instead , trading is done by telephone and computer links between dealers in different malls and different countries.

The foreign exchange market is considered an Over The Counter (OTC ) market or " interbank " as transactions are conducted between two counterparts over the phone or via an electronic network. Trading is not centralized on an exchange , as with the stock and futures markets .

Reasons for buying and selling currencies

Through the mechanism of foreign exchange market companies , fund managers and banks are able to buy and sell foreign currencies in whatever amounts they want. Demand for foreign exchange is stimulated by a number of factors such as capital flows arising from trade in goods and services , cross-border investment and loans and speculation on the future level of the exchange rate. Exchange transactions are generally for amounts between $ 3 million and $ 10 million , although the transactions much higher amounts are often made.

There are two basic reasons to buy and sell currencies . About 5 % of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation .

currency speculation

Speculators want to trade currencies for the opportunity to enjoy a movement in exchange rates . For example, if a trader believes that the euro will weaken against the U.S. dollar, the trader can sell the euro against the U.S. dollar on the Forex market. This is mentioned as that from a commercial point of view, is the same as " long dollar against the euro," " short Euros against the dollar ." If the euro weakens against the dollar , while the benefit position

For speculators , the best trading opportunities are usually the most commonly traded currencies and therefore more liquid , called " majors ." Today, more than 85% of all daily transactions involve trading of the Majors, which include the U.S. dollar , Japanese yen , euro, British pound, Swiss franc, Canadian dollar and Australian dollar.

Real market for 24 Hours

Forex is a true 24-hour market and trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center , first to Tokyo, then London , and New York. Unlike other financial markets , traders can respond to currency fluctuations caused by economic , social and political as they occur events - day or night .

As with all financial products, FX quotes include a "bid" and "offer" . The "bid" is the price at which a seller is willing to buy - and clients can sell - the base currency for the counter currency . The " Bid" is the price at which a seller to sell - and customers can buy - the base currency for the counter currency .

The U.S. Dollar is the Centre - part

The U.S. dollar is the centerpiece of the Forex market and is normally considered part as the motto "base" for quotes. In the " Majors " , this includes USD / JPY , USD / CHF and USD / CAD . For these currencies and many others, quotes are expressed in units of U.S. $ 1 per the other currency quoted in the pair . Exceptions to mention USD based include the euro , British pound (also called Sterling) , and Australian dollar. These currencies are quoted in dollars per foreign currency as opposed to foreign currencies per dollar .

What affects the price currency

Currency prices are affected by a variety of economic and political conditions, most importantly interest rates , inflation and political stability. Moreover , governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price , or conversely buying in order to raise the price . This is known as the intervention of the Central Bank.

Each of these factors , as well as large market orders , can cause volatility in currency prices . However, the size and volume of the Forex market, it is impossible for any one entity to "drive" the market for any length of time.

Currency traders make decisions using technical and economic fundamentals. Technical traders use charts, trend lines , levels of support and resistance levels , and numerous patterns and mathematical analyzes to identify trading opportunities . Fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports , and even rumor.

Rewards and risks in the Forex Trading Market

Currency trading is a challenging and potentially profitable opportunity for educated and experienced traders occasion.

However, there is a significant exposure to risk in any foreign exchange transaction . Any transaction involving currencies involves risks including, but not limited to , the potential for changing political and / or economic conditions that may affect the price or liquidity of a currency.

In addition, the nature of FX trading means borrowing that any market movement will have an equally proportional effect on your deposited funds . This may work against you as well as for you. The possibility exists that you could sustain a total loss of guarantee funds and be required to deposit additional funds to maintain your position . If you fail to meet any margin call within the time prescribed , your position will be liquidated and you will be responsible for any loss resulting .

Before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite . More importantly, you should not invest money that you can not afford to lose .