Forex
Forex also referred to as foreign exchange market or just FX market is where trading of currencies take place. It is one of the largest markets in the world and has survived the negative impacts of the subprime mortgage crisis. With the credit crunch threatening the financial well being of millions of consumers, trading in foreign currency seems to be the only way of getting some financial solace.
Trading in the foreign exchange market can take place between central banks, governments, corporations, currency speculators, other institutions etc. Trading volumes, the market’s liquidity, long trading hours, factors affecting the exchange rates and low profit margins make the Forex market unique. There is never a recession in this market because if the value of one currency rises, the other falls and so on. In forex trading, there is simultaneous trading of currencies and trading of currencies usually takes place in pairs. For instance, Euro/USD or Euro/Yen etc are traded in pairs.
The “Majors”
The main advantage of trading currencies is that the forex is open throughout the day 24 hours 7 days a week and at any point of time at least one financial center remains open for trading. The “Majors” are the most commonly traded currencies and the most liquid. The “Majors” are US Dollar, Japanese Yen, Euro, Australian Dollar, British Pound, Canadian Dollar and Swiss Franc. The “Majors” are involved in almost 85% of the forex trading everyday.
If you are planning to trade in forex market, it is essential you understand the various aspects that influence trading in the forex market, determining exchange rates is one of them.
Factors affecting exchange rates
In case of fixed exchange rate regime, the government decides the exchange rates. There are a number of factors that determine the exchange rate if it a floating exchange rate regime.
- Market psychology
The market sentiment prevailing at any point of time determines the value of the currency. The current psychology of the market is determined by studying the trends, indicators as well as patterns.
- Economic factors
Changes introduced in the monetary as well as fiscal policy may impact the exchange rates. The changes also get reflected in the interest rates. Other economic conditions affecting the interest rates include the following-
1. Budget deficits
2. Budget surpluses
3. Trade flow between nations and trends
4. Inflation and its trends
5. Gross Domestic Product or GDP
6. Retail Sales
7. Levels of employment
8. Capacity Utilization
9. Economic productivity
- Political conditions
Any kind of international, internal or regional event may affect the value of currencies. A political disturbance can negatively impact the economy of the country.
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Virtual market place In Forex trading, you can also trade online. So, it is a global market. It is usually regarded as an “Over the Counter” or OTC market. With the prevailing credit crunch, forex trading is one of the best options that have the least number of financial hazards associated with it stock and forex trading.
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Forex trading – Market Forex offers investors a complete and direct access to the worldwide forex currency trading markets, No need to download software, forms, simply signup and start trading.