Know More About Forex Market And How To Trade Itby andrew n. Manager
Foreign exchange trading has been the largest market in the world where currencies of countries are exchanged. Its sheer trading volume is so massive that all the other stock markets combined won’t even stand a chance to it. With over 5 trillion dollars in transaction daily, all thanks to its global decentralization. From a common tourist exchanging his motherland’s paper money in another nation for a cup of coffee to multibillion dollar international banks and financial institutions, it plays a major role in currency interchange. It is the final destination where the exchange rate of currency is decided and acts as a hub for the money traffic.
Origin of Forex trading
From the time when people started travelling to different parts of the planet for trade to the time where the global market is predominantly decided, foreign exchange trading has been the paramount of all the markets. Is it because it is the most liquid market in the world or the fact that it is a rewarding investment?
There are different types of forex trading in practice namely scalping, day trading and swing trading. All the three require different trading strategy. Scalping is similar to intraday trading in the stock market. It is normally executed within few minutes and maximum within few hours. In this, traders who are called sculptors will trade with the goal of achieving multiple small wins within the day. In this, people used to gain profit with the small price changes that happen in shorter periods. Due to high speed and short timing, traders need to be precise with their timing and execution. They may also suffer loss but if they keep win percentage and win sizes large, they can make up for the losses they suffer.
Day trading and swing trading
Day trading and scalping may look similar but there are lots of differences between them. Normally, in the day trading people won’t go for multiple setups like scalping and will wait for the best opportunity for completing the trade but ultimately will close in the same day. Main aim for the day trader is to go for larger piece of price movement of the trade within the day. Some of the key aspects of the day trading is that the traders wait for the price to reach the major decision points on the chart which will provide maximum profit for them and they also need to be patient as the forex market is volatile and price will go up and down several times during the day. They must also strict to their trading plan irrespective of the volatility of the market. To put it simple, mission of the day traders is to find the most profitable buying and selling position of the financial instrument.
Last style of trading is the swing trading. In this traders enter and exit the trade sporadically normally holding on for days and weeks. Long term trading is different where they will hold on for weeks and sometimes months. They generally aim for larger price targets and will wait for the trade to develop. Sometimes they prefer to close the setup before the weekend and sometime they will hold on for a week.
Why dollar is used as benchmark
If more amount of money is being transacted to a foreign party in return for a product, it will result in more outflow of the country’s currency to a foreign country. But at the same time, it is necessary to do this transaction in a number of occasions. It is not possible to exchange money as a barter process. Now days there are a number of organizations involved in evaluating value of the currency of a country against another country. For instance, money of the particular country may value the same or less than the currency of another country. But at the same time, it may be a way less than another country. These variations happen often because there are a number of factors that will determine this exchange rate. The volume of trade between countries is the most important factor that is used in determining the rate of exchange of money. There are a number of organizations like the central banks of the country and the private money trading companies involved in making the exchange of currency across countries. The two major things that many countries need foreign currency to import gold and petroleum products. It is possible to acquire the standard money for the transaction of both gold and petroleum, which is nothing but US dollar.
There are a number of reasons why US dollar remains as a most valuable asset in forex trading. It is possible to make use of the dollar to transact across any country that is supplying these products. It is very helpful in determining the value of the petroleum products and bullion values. Also it is possible to do transactions in a hassle free environment without involvement of many exchanges as dollar goes directly from the account of buyer to the seller. Many people are also successful in this process also. Some calculated risk has to be taken by a person in many occasions to maximize the returns from the investments within a short period of time. There are a number of companies came up online to educate people who want to involve in forex trading. There are also many possibilities to invest through forex online.
In general, Forex is also like share market process only. But here the actual trading will happen on currencies. There are lots of factors that will disturb the value of the currency. If the country does not have good dollar in reserve it will affect the value of their currency as they need to spend more of their own currencies to buy dollars and also weak economy will bring down the value of their currency. Inflation will be the main factor which will decide the value of the currency against other currencies. If the inflation is high, then the currency value will go down.
Created on Dec 3rd 2018 08:11. Viewed 121 times.