What is Forex Trading?
Forex Trading, Foreign Exchange, or simple FX Trading is like a network of buyers and sellers who exchange currencies at a settled price. If you have experienced traveling abroad, you probably have made a foreign exchange transaction. Dealing with foreign exchange is an everyday existence in the global market, amassing over $5 trillion daily.
Contrary to shares, forex trading does not happen on stock exchanges, but through two parties through over-the-counter transactions. The forex market is managed by a network of banks across the world and operates 24/7 because it is not centralized on a specific time zone.
Forex Trading gives traders the opportunity to speculate on price movements on the global exchange market. The value of a certain currency rises and falls in relation to market movement and traders can buy currency pairs when they predict that the base currency will come out stronger against the other.
How does the foreign exchange market move?
There are two ways in which the foreign exchange market moves. These two methods are determined through fundamental and technical analysis. Both methods are integral to the trading operations and every forex trader must be aware of its pros and cons.
Fundamental Analysis
This type of analysis examines the causes of a currency’s movement. Aside from this, it covers the analysis of a country’s economic state which affects the market movement. This analysis is crucial for forex traders as it highly affects the value of a certain currency in general due to inflation, GDP status, bank interest rates, and other possible reasons.
Technical Analysis
In this type of analysis, traders delve into discovering the patterns and trends of the market movement. Technical traders are more focused on these tendencies, including flags and double bottoms and they are not very much concerned with the trade movement. What matters more to them is to understand the patterns to give them signals about possible changes in the market.
What is Forex Trading good for?
Like what has been mentioned, the value of currency pairs change depending on various factors. Most countries adopt a policy of controlled inflation and taxation that intends to create market movement and therefore invite more traders. If you keep your fund stagnant, its worth decreases. In the Forex market, you need to keep the value of your fund worth sustaining.
The unpredictable currency value in the global financial market opens opportunities for commerce, travel, and business. If a certain currency is currently low at present, for example, you can spend that to buy goods from the country that uses them for less than they would otherwise worth.
