Finance

Trading In The Foreign Exchange Market

Forex is an abbreviation for the word foreign exchange which refers to buying by speculators and investors in the foreign exchange market. It is, therefore, an international market where investors and speculators trade types of currencies from all over the world. The average trading volume in the forex market exceeds 5.3 trillion dollars on a daily basis, thus making it the largest and most liquid market. Since Forex trades over the counter, there is no central exchange and individuals are at liberty to either sell or buy currencies as they please. The Forex trade can be conducted five days a week, 24 hours in a day where investors and speculators can access margin trading exposed to both local and international markets.

Forex is responsible for determining the value of different currencies across the world as it is a globally decentralised marketplace. Since it lacks a centralised depository for the purpose of conducting transactions, several operators bear the responsibility of conducting these operations in different locations across the world. In the foreign exchange market, two currencies rarely, if ever, are of the same value. There is also a high likelihood that the value of any currency will remain constant ant because they keep changing after a short period. Although there is no sure way to determine the shift in value that will occur in future, the foreign exchange market relies on pivot points which help to create an idea of what the values of individual currencies will be in future. These figures help investors and speculators in making the decision of whether to sell or buy a certain form of money. The following illustration of the pivotal points of different currencies indicates an example.

Forex exchange is conducted in scenarios where a form of currency, such as the dollar, is expected to lessen in value when compared to another currency, like the euro. In such a situation, those trading in the forex exchange market may decide to sell their dollars and buy Euros. Since the value keeps on shifting, the individual waits for a time when the euro has strengthened, and there has been a growth in the purchasing power to buy dollars. If such a scenario presents itself, the trader buys back more dollars that the ones sold and in doing so make a profit. The transactions that occur in forex exchange are similar to how traders in stock trading sell a stock whose price is expected to drop or buy when the stock is supposed to rise in the future. Similarly, traders buy currencies whose value is projected to grow and sell that whose price is expected to fall in the future so as to benefit from the difference in values.

Similar to stocks, bonds and other goods and services, currencies are traded in an open market and like any other property; their values either fluctuate or diminish depending on their supply and demand. If the request of an individual currency decreases or its supply increases, the result could be a decline in its value. However, if the currency’s demand increases or the supply decreases, the value of the coin is likely to rise. Regardless of the evolving value of coins, investors and speculators are at liberty of either selling or buying any form of a currency pair at any time depending on their liquidity availability. If for example, an investor believes that there will be a decline in the value of the Euro, he can decide to sell the euro and in return buy the dollar. The same will apply for gold where history has proved that the price of the Australian dollar is significantly affected by the price of gold. In such a case, an investor may decide to buy the Australian dollar because there is an expected rise in the price of gold and return sell the United States dollar.

Trading in foreign exchange involves the participation of major investors, speculators and other key players in the market one of which is CMC markets. The investors and speculators make investments depending on how the value of currencies are expected to shift. Other than offering the opportunity to trade internationally, the foreign exchange market is open five days in a week. Investors have the chance to buy or sell their stock at any given time as long as the market is free. Company investors and speculators employ highly qualified employees and rely on valid information so as to ensure they make the right decision when choosing to buy or sell in the foreign exchange market.

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