Trading in the Foreign Exchange Market
If you ask the average investor about thoughts on good investments, you're unlikely to hear the foreign exchange market as a popular answer. It is confusing to many people, and its high risk factor doesn't help. This article will try to clear up some of the mystery surrounding foreign exchange.
To start, what does it mean to trade in Foreign Exchange markets? How does the process work and what do you use? Well, you use the different types of monetary units from around the world. Investors purchase money, or currency, from a country by selling the currency of another country. The transaction is so common and widespread that international business is impossible without it. You, too, have traded in the foreign exchange market, whether are aware of it or not.
Maybe it was in the course of a vacation out of the country, or on a business trip, that you had to use local money for transactions. Whether you were operating with traveler's cheques, hard cash or on credit, during the course of any transaction there was an exchange that took place. Right away you will realize that the FX Market has been a part of your life.
There is also the indirect method of trading in foreign currencies. If you are a lover of foreign cars or merchandise, they were originally sold to importers in that country's currency. Selling goods in a foreign country means the purchase in the country of origin (the purchaser having to exchange currency), with calculations made as to what that means locally, then determining the resale price in the country where it will be sold. At any point of the transaction, the FX Market was involved and so were you, indirectly. Exchanges like this one fuel the market, making purchasers, exporters and importers all players. It is an indirect form of participation, but without the exchange of currencies you would never see imported products.
Part of the confusion surrounding the FX market is the fluctuation of currency. As with the price of most items on indices, supply versus demand factors heavily in the equation. As a certain currency is wanted and demanded on the market, the price will rise, as sellers realize they have something with which to bargain. Buyers are willing to pay more, supporting the whole transaction. On the other hand, as a currency ends up heavy on the supply end, anyone wishing to dump it will have to accept a lower price. This part of currency exchange makes sense when you stop to consider it.
The really tough question though is what makes supply and demand change? This is the 1 question which makes trading in the FX market so difficult. Basically, no-one knows exactly what all the factors are that cause supply and demand to change in these markets. Many traders have a good idea of the major influences, but there are so many things which impact currencies that it is nigh on impossible to formularise the exact reasons currencies change price.
To figure out the value of a particular currency, one has to find the economic value of the country, comparing it against the stability and economic foundation of another. There are a staggering amount of factors that could affect the economy of any country, so bear that in mind. Sometimes, all logic seems to have been thrown out the window, while a mood or feeling of a people or investor group is overwhelming the trade. From a simple glance, one can see the difficulty of depending on this business to deliver clear results.
Remember that the economy of a country only makes up half of the total equation. It must be weighed against the economy of another country to decide its value in the world at large. Having a great understanding of one economy only works when you have an equal understanding of the second country's economy.
On top of that, your currency will be stacked up against the entire world's currencies. At this point you need a truly global perspective, weighing extremely diverse factors, before you decide one country's currency will spike in value while another will remain stagnant.
Even if you have done your homework and are ready to make some smart moves, you must hope that everyone else cooperates. Currencies may change when someone's opinion changes, when some projected numbers have come in high or low, or even when other investors in another part of the world make a move. The fundamental traders, who weigh all the issues when making trades, are in the mix with technical traders, who operate on numbers alone. Each has its own place in the movement of prices.
There are also types of investors who buy currencies far in advance of any hopes of selling, waiting to see the long-term growth. Many use this investment to support other, unrelated ventures. Naturally, this will affect the prices. It's a complicated equation.
Then there are Foreign Exchange Trading Strategies which don't need to predict if a currency is going to go up or down. It doesn't matter which way the traded currencies move, they make small incremental profits in both directions.
I hope this helps take some of the mystery out of the FOREX market. - 23159
To start, what does it mean to trade in Foreign Exchange markets? How does the process work and what do you use? Well, you use the different types of monetary units from around the world. Investors purchase money, or currency, from a country by selling the currency of another country. The transaction is so common and widespread that international business is impossible without it. You, too, have traded in the foreign exchange market, whether are aware of it or not.
Maybe it was in the course of a vacation out of the country, or on a business trip, that you had to use local money for transactions. Whether you were operating with traveler's cheques, hard cash or on credit, during the course of any transaction there was an exchange that took place. Right away you will realize that the FX Market has been a part of your life.
There is also the indirect method of trading in foreign currencies. If you are a lover of foreign cars or merchandise, they were originally sold to importers in that country's currency. Selling goods in a foreign country means the purchase in the country of origin (the purchaser having to exchange currency), with calculations made as to what that means locally, then determining the resale price in the country where it will be sold. At any point of the transaction, the FX Market was involved and so were you, indirectly. Exchanges like this one fuel the market, making purchasers, exporters and importers all players. It is an indirect form of participation, but without the exchange of currencies you would never see imported products.
Part of the confusion surrounding the FX market is the fluctuation of currency. As with the price of most items on indices, supply versus demand factors heavily in the equation. As a certain currency is wanted and demanded on the market, the price will rise, as sellers realize they have something with which to bargain. Buyers are willing to pay more, supporting the whole transaction. On the other hand, as a currency ends up heavy on the supply end, anyone wishing to dump it will have to accept a lower price. This part of currency exchange makes sense when you stop to consider it.
The really tough question though is what makes supply and demand change? This is the 1 question which makes trading in the FX market so difficult. Basically, no-one knows exactly what all the factors are that cause supply and demand to change in these markets. Many traders have a good idea of the major influences, but there are so many things which impact currencies that it is nigh on impossible to formularise the exact reasons currencies change price.
To figure out the value of a particular currency, one has to find the economic value of the country, comparing it against the stability and economic foundation of another. There are a staggering amount of factors that could affect the economy of any country, so bear that in mind. Sometimes, all logic seems to have been thrown out the window, while a mood or feeling of a people or investor group is overwhelming the trade. From a simple glance, one can see the difficulty of depending on this business to deliver clear results.
Remember that the economy of a country only makes up half of the total equation. It must be weighed against the economy of another country to decide its value in the world at large. Having a great understanding of one economy only works when you have an equal understanding of the second country's economy.
On top of that, your currency will be stacked up against the entire world's currencies. At this point you need a truly global perspective, weighing extremely diverse factors, before you decide one country's currency will spike in value while another will remain stagnant.
Even if you have done your homework and are ready to make some smart moves, you must hope that everyone else cooperates. Currencies may change when someone's opinion changes, when some projected numbers have come in high or low, or even when other investors in another part of the world make a move. The fundamental traders, who weigh all the issues when making trades, are in the mix with technical traders, who operate on numbers alone. Each has its own place in the movement of prices.
There are also types of investors who buy currencies far in advance of any hopes of selling, waiting to see the long-term growth. Many use this investment to support other, unrelated ventures. Naturally, this will affect the prices. It's a complicated equation.
Then there are Foreign Exchange Trading Strategies which don't need to predict if a currency is going to go up or down. It doesn't matter which way the traded currencies move, they make small incremental profits in both directions.
I hope this helps take some of the mystery out of the FOREX market. - 23159
About the Author:
If you are tired of your slow mutual fund investment, Damian Papworth suggests FOREX trading. The speed and possible returns are unparalleled.
posted by X - Men @ 9:48 AM
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