The foreign exchange market or forex could be defined as a global currency market in the world’s financial market. In the forex market, international currency of one country exchanges currency from the currency of another country at a basic changing rate. This exchange rate depends on the actual date on which the exchange is carried out.
FOREX works in a virtual environment, where currency dealers are connected to each other through telecommunications. Currency brokers in the market are connected round the clock to leading world financial centers. This makes Forex a very efficient and united system. The foreign exchange market has been founded in 1971 after the abandonment of the Bretton Woods. The rates of the foreign exchange market were set up according to the universal fixed exchange rates. Entities that are part of Forex include commercial banks, exchange markets, central banks, firms involved in foreign trade transactions, investment funds, broker companies and private people.
Transactions in foreign exchange or forex are mainly done by forex brokers. The functions of forex brokers are similar to stock brokers, as they both provide advices on dealing forex trade efficiently. The advices given might comprise technical and research analysis of approaches that are designed to perform forex trading more efficiently.
Basics of FOREX:
Foreign exchange risk:
Foreign exchange risk or exchange rate risk can be defined as currency risk exposed to companies that do its business in another currency. The risk is applicable to only those companies that have different sales and cost currencies involved in their business functionalities. Companies that have same sales and cost currencies are not exposed to this type of risk.
Spot market: Spot market is the most important market in the foreign exchange because of the largest volume it acquires in the market. As the name suggests, the dealing done in this market are settled down on the spot or within two banking days. The spot market includes some other functional entities or derivatives like swap contracts, forwards and futures. The derivatives involved trace out the risks involved in production, commerce, and finance. They further help in maintaining risk management by transferring risk to the person who can easily bear it from the person who is not in the position to handle the risk.
Advantages associated with Forex trading:
- High amount of leverage are associated with forex trading.
- No commissions are attached to it.
- Less or limited amount of risks are attached with it.
- A definite amount of price along with instantaneous fills is guarantied attached.
- trading can be done anytime, as the market is open for 24 hours.
Strategy for doing forex trading involves two conceptual analysis including fundamental analysis and technical analysis.
Fundamental analysis is done to account movement of currency in the market based on the information obtained from news report, economic policies, information on inflation and growth rates of the market, and unemployment percentage. Technical analysis helps in obtaining entry and exit points into the market. Further, the changes in the market are obtained through economic indicators like reports released by the government or private firms. The changes help in detailing the country’s economic condition and performance. The reports also help in comparing the present economic condition of the country to its previous status.
Tips for doing forex trading:
The tips given below can help in obtaining profits faster, while helping in entering the elite class (possessing 5%) of traders
- Follow your own mind: It is advised in the forex trading to follow your own mind and strategies. Don’t look for other people actions as it can harm your success in the market.
- Look out for right information: Information regarding various aspects of forex trading is available on the internet. One can easily obtain the information on his own and can guide himself for taking right step.
- Understand forex trading system: Understand properly the usage of support, resistance, and breakouts associated with the forex trading. Take proper information on the momentum indicators regularly. Check out for forex charts to spot repetitive price trends and trace out the points where you can get profit from the market.
- Confidence and Discipline
You will gain confidence in yourself if you follow your own mind and strategies in the market. Be discipline regarding every move and action in the market because this can help in knowing profitability scenario of the market.
- Work smartly: Forex trading demands smart work not hard work. Take wise decision and catch the right trading signal to obtain profit from the market.
- Know yourself and your limitation:
As said earlier, follow your own mind and know your limitation to protect yourself from the risks involved in the trading.