Forex, also known as foreign exchange, is a decentralized global market where all the world’s currencies are traded. Currencies are important to most people around the world, whether they realize it or not because it needs to be exchanged between countries to conduct foreign trade and business. The volume of transactions in forex makes it the most liquid market in the world.
All about exchange:
Let us suppose you take a trip to Paris. For the journey and expenditure in the country of France, you exchange your currencies into the Euros. The exchange rate fluctuates every day based on the supply or demand, i.e., how many Euros you get for your national currency. This demand/supply hinges on various factors such as political situations, interest rates, economic performance and the perception of how the currency would perform in the future.The fluctuation may not seem like a big deal considering how small the transactions are, but when it comes to the big players like Multi-national companies, the factor of the exchange-rate has a profound impact. This is when you hold your money for favorable forex rates.
Opportunities in Forex:
Just like stocks, you can also trade currency on your prediction of exchange rates. But the big difference to stokes and shares here is that the fluctuation sometimes is very random and oscillating between high and low in a matter of seconds. If you think a currency will increase in value, you can buy it. If you think it will decrease, you can sell it. The Forex market is one of the largest and most liquid markets. With a large market, finding a buyer when you’re selling and a seller when you’re buying is much easier than in other markets.
Unlike the stock market, a smaller one with tens of thousands of stocks to choose from, the Forex market revolves around more or less eight major currencies. A narrow choice means no rooms for confusion, so even though the market is huge, it’s quite easy to get a clear picture of what’s happening. Though the underlying reason for fluctuations in the exchange rate may be difficult to comprehend or predict, the watch list is short and manageable.
Basics of Forex trading starts with the exchange rate trends. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. Although this may seem pretty simple, You being able to identify when a pair is in a trend and when it isn’t will help you to increase your chances to profit consistently in the Forex market. When you can identify a trend, you can estimate what direction the rate of a currency pair is going to go in. You should exploit the direction of the trend you identify by placing a trade in that direction
Like any other market trading, Forex has its own risks. The unpredictable nature of exchange rates is the reason why this may be risky. There are possibilities that the economic situation of a country may bring down its value in the market or a country’s government can decide to devalue their currency. Such decisions affect trading significantly, and the person involved in Forex must also be aware of the Global economic scenario to safeguard his interests.