A Brief Guide to Foreign Exchange Trading
Foreign exchange trading is nothing but dealing in foreign exchange with the speculative
motive to earn profit from the change of rate of the currency. So how does this
speculation work? Basically the intention of the customers is to buy the
currency at a lower rate and then sell it at a later stage when the prices
of the currency appreciates .But the speculation doesn’t always holds good
because the market condition are not always same, there are abundance of reasons
on the basis of which the foreign exchange currency rate fluctuate which are as
follows:
Factors affecting forex
fluctuation are as follows:
The first factor which accounts for the change in the forex rate
is the inflation. Lower inflation rate will see appreciation in the value of
currency whereas higher inflation rate will see depress in the value of the
currency
Another major factor affecting currency exchange rate is the
current and capital account status and its balance of payment which include all
the export and import transactions of the country. A deficit in current account
will depreciate the currency value and value will be appreciated when the
account has surplus.
Political stability of the country is also another major concern
for currency fluctuation
If
there is turmoil in the economy, there is a loss of confidence in the currency,
which would lead to deflation of the currency value, whereas good political
conditions, stability in the political system will lead to appreciation of the
currency of that economy
Recession
in the economy is also another major concern for currency fluctuation.
Deflation is caused by the fall in demand and it leads to hoarding of money,
the spending power of individuals is reduced. The money circulation in the
economy becomes slow, so all these reasons have a negative impact on the economy,
which leads to fall in currency rate.
Banking operations of the economy
affects the forex fluctuations. The banking rules regulations, norms, policies
influence the demand and supply of the forex in the economy and as a result the
currency rates fluctuates.
Apart from the banking policy and
operations, monetary policy of the economy has a key role in influencing the
forex exchange rate. The inflation and deflation of the home country currency
is further interlinked to exchange rate in another country.
International transactions between the
countries have an impact. The export and import transactions between two
countries also change the rate of exchange
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