New to currency trading? This article will introduce you to some of the main concepts and definitions that make up this busy and complex market. Read on to get started on your path towards a greater understanding of trading currencies.
The forex market- a place to trade currency
The foreign exchange market is a global trading arena for the exchange of currencies. It may also be referred to as the currency market, forex or fx. Among those involved in such activities are individual traders, larger commercial companies, businesses that may deal in export/import activities, as well as the major banks. The foreign exchange market and the relations between buying and selling rates set the relative values of the different currencies across the globe.
Financial bases worldwide govern contact between a huge variety of different types of forex buyers and traders and operate 24 hours as day. An example of one such FX trading platform would be Reuters. Transactions on these markets often involve large quantities of currency reaching into the millions of pounds. As a result of complex sovereignty issues when trading between two separate currencies, there is little in the way of a regulatory body to act as a watchdog.
Currently, daily average turnover across in forex markets across the world is estimated at around $3.98 trillion. This number accounts for a 20% increase during the last three years – so trading on the foreign exchange market has seen a dramatic increase during this time.
What affects exchange rates?
Variations in exchange rates will often come as a direct result of various internal money pressures within a country and even as a result of market expectations of changes in these cash flows. The financial pressure experienced by a country or sovereignty will depend on factors such as national budget, trade deficits, growth, gross domestic product, interest rates, inflation and a range of other economic conditions. As this type of information is generally made available to the public, speculation by independent traders is made possible.
The rate at which a currency can be exchanged for another is referred to as an exchange rate, thus it will always involve two currencies and the numbers appear in pairs. For example, example EUR/GBP (the Euro against the British Pound). These rates can change dramatically due to the to economic issues we have seen (inflation, production, political happenings around the world etc). A great many factors need to be considered when selling or buying currencies.
When you feel ready to start trading yourself, remember to maintain discipline. Forex exchange rates often fluctuate quite dramatically and the exchange rates may rise above your profit predictions. One common beginner’s mistake is to hold out in the hopes of even greater profits – but unpredictably, this favourable exchange rate could drop again. If you are able to stay in profit during your initial couple of months of trading, you will have picked up enough useful practical knowledge to stay in the game.
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