Forex information
FOREX-Foreign exchange is the world\'s largest and most liquid trading market. It is the best way to work from home. With the advent of technology and e-commerce it is a smooth trade that can be carried on within the comforts of home. Trading FOREX is like picking money up off the floor and not trading FOREX is giving another a chance to pick up. It is not centralized like stock exchanges. It runs 24/7 and is considered as over the counter or interbank market as it involves network of banks connected electronically.
Basically Forex means trading or exchanging currency of one country for another. Eg: Buy US dollars paying Indian rupees, sell Euro for Japanese Yen etc. It is done to protect the fluctuating exchange rate of different currencies. Forex is the biggest and the volatile market where the daily turnover crosses 2. 5 trillion dollars.
The profit element comes from the fluctuations-buy cheap and sell high. You can make unlimited profits but you cannot lose more than your margin. You can choose the amount, currency and the volume of your trade and the physical possessions of currency are not mandatory.
The trade balance and foreign portfolio investment are the two variables in determining the forex rate. Speculation helps in enhancing market efficiency and liquidity. The first currency listed is the base currency and the value of base currency is always 1.
For example we will have a study on Korean forex market. It is divided into a customer market and interbank market. Korean forex market is very thin and the proportion of daily turnover is only 3. 4 % compared to 13% of US and 87% of UK.
The Korean forex market liquidity is so low because of many reasons like Forex market is not well developed, Opportunities for hedging and speculation is limited Non bank financial institutions are not allowed to enter into forex business Majority of forex transactions are made in the interbank market. The trade is of less risk when traded through brokers. It reduces search costs and the risk involved in quoting buy and sell shares. Out of 70 players in Korean forex market 17 banks account for 75% of total turnover.
Why FOREX trading?
Low transaction costs- in terms of both commission and transaction fees.
24 hour market-so anybody in this world can trade at any time Forex market provides superior liquidity 100:1 leverage Profit potential is high in both falling and raising markets. A short position is when a trader sells a currency anticipating that it will depreciate in future.
Basics
The first currency listed is the base currency and the value of base currency is always
1.US Dollar is always the centerpiece and considered as base currency. For eg: a quote USD/INR 120.03 means that one US Dollar is equal to 120. 03 Indian Rupees.
When USD goes up it means the dollar value is appreciated and the other currency is weakening. But there are 3 exceptions? British Pound (GBP), Australian Dollar (AUD) and Euro (EUR). The currency pair which does not involve USD is called cross currencies.
The two terms in forex trade is ?bid? and ?ask?. Bid is the price at which you can sell your currency and ask s the price at which you buy the base currency.
Technical Analysis
Vast majority of traders relies on Charts and Tables to know the trend in forex market.
The basics of charting
Identify the trend ?Currencies have a tendency to move in trending fashion due to long term economic elements that drives exchange rates, interest rates etc.
Trend line analysis
Directional Movement Indicator System.
Factors which move Forex rates Strength of the economy-An economy?s growth has an impact on forex market. If an economy is booming it will attract foreign currency and vice versa.
Political and Psychological Factors-Exchange rates fluctuate if there is a change in government. Iraq war or attack on WTC all has a impact on forex rates.
Economic Expectations-Expectations on the economy impact on forex rates. If the economy expects a yen fall by 7% to 9 % it has a bad impact on forex market.
Inflation Rates-If a currency is over valued depreciation is expected to correct that. Exchange s a relative price and hence all the market forces affect it.
Capital Movement-directly connected with exchange rates. The FIIs-Foreign Institutional Investors purchases shares in Indian Companies strengthening the currency.
Speculation-plays a major role in currency market. If an institution speculates and buys USD 1 million, it will raise the value of USD significantly. If few others join the race it will raise even further. Most famous speculator is Mr.George Soros had made over a billion sterling.
Balance of Payments-If a balance of pay is positive it strengthens the currency. This is because supply of foreign currency is in excess of demand.
Govermenents monetary and Fiscal Policies-
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