An Introduction to Forex
Forex (Foreign Exchange) Trading gives people the opportunity to trade in world currencies. This means traders can take advantage of beneficial exchange rates around the world, and make a profit on the difference.
Whilst most markets offer limited operating hours, the Forex Market is open 24 hours a day; markets are generally much more liquid as a result. Forex also gives people an alternative trading arena to that within a particular country, which can be restricted by virtue of its particular economic and political condition.
Forex offers buyers the opportunity to enjoy lower fees – both market entry fees and trading fees are generally lower than within other markets. It also has the potential for higher returns through increased leverage. There is no market manipulation within Forex due to the sheer scale of the market.
How Does Forex Work?
If you have travelled abroad, you will have been involved with Forex without necessarily recognising it as such. As you make preparations to go on holiday, you will need to purchase a foreign currency; when you return home, exchange rate changes mean the money that you have leftover will be worth a different amount than when you made the initial purchase, and you will have in effect made a profit or loss as a result.
What to Look Out For When Making Forex Decisions?
Forex trading can be a good trading option for both beginners and advanced traders alike. However, it is paramount that you have a basic understanding of how Forex works, and the risks inherent.
Having a strategy is fundamental to ensuring you fulfil the potential of your trading options. It is important to know your budget and how far you are willing to go with a particular trading option. What can you afford to lose? You should also consider whether you are looking to trade in the short or long term.
The Current World Economic Climate
The current world economic climate offers a particularly interesting time for Forex Traders, as political and economic uncertainties in major economies create good opportunities for speculation. For example, the UK is currently in extreme political and economic uncertainty, following both its decision to leave the European Union last year, and the recent hung parliament, which failed to galvanise the Prime Minister’s domestic advantage. The prospect of Britain leaving the EU is also having the effect of destabilising the Euro. Huge controversy surrounding Donald Trump’s presidency in the US is creating economic tensions, and making the Dollar volatile. These are just two examples of major economic world powers with major question marks hanging over their immediate to long term financial futures. Forex traders look for news in such countries that might lead to improved trading options.
Major and Minor Currencies
Approximately 90% of the Forex market is made up of just a few major currencies, including the US Dollar, UK Pound, Euro and Japanese Yen.
Minor currencies, such as the Mexican Peso and Swedish Krona are traded in smaller quantities. They usually represent smaller or emerging economies. Although the cost of trade is often relatively high, and their market movements less liquid, it can be wise to keep an eye on smaller growing currencies as they become bigger players on the world stage.
Although there are no fail-safe ways of trading, by paying attention to the aforementioned areas, and generally keeping an eye on political and economic news on an international scale – you will be better placed to be a successful Forex trader. The current world economic climate creates both risks and opportunities. However, the current volatility of certain world markets means there is greater liquidity in the Forex market, and it is therefore a very interesting time to start Forex Trading.