Forex Trade – Introduction, Characteristics, Fundamental Analysis
Table of Contents
Foreign Exchange Market or Forex What is it?
Forex Trade – The foreign exchange market is the buying or selling of currencies. Its objective is foreign exchange operations derive from international trade and movements in international financial markets.
A very simple example that applies in everyday life is when traveling. If you go to another country on vacation, you will have to buy the currency of the country you travel to with the currency of the country where you live.
Forex Trade Currencies and their Classifications:
A currency is a means of payment denominated in foreign currency, it can be coins, bills, or traveler’s checks.
There are two types of currencies: convertible and non-convertible.
Convertible, flexible, or floating: they are those that can be freely exchanged for other currencies and their price is determined by the international market and can be exchanged without any type of government intervention.
Therefore, major world currencies such as the US dollar, the British pound, the Swiss franc, the yen, and the Euro are fully convertible currencies.
In the case of the Mexican peso or the South African rand, they can trade without any type of limitation or intervention by any government authority.
Non-convertible: they are those that are subject to restrictions in each country and the prices establish by the State.
How does the Currency Market Work?
The foreign market is also known as the exchange rate market. Foreign Exchange or FX, is a global and decentralized market in which currencies trade. The price determines by the exchange rate, and varies according to the demand for the currency, for this reason, the prices go up and down every day.
For example, if many people are interests in buying dollars, the price of the dollar will rise, and this will happen with the demand for any other currency. The objective of the foreign exchange market is to facilitate the coverage of the money flow that derives from international trade. Currently, there is an average daily volume trade of around 5 trillion dollars in the world.
Characteristics of the Forex Trade Market
1. It is the largest market in the world
2. It is highly volatile and is a free, unregulated market
3. Its participants have little chance of market manipulation.
4. It is active 24 hours a day. On weekends there are no movements
5. Most of the transactions centered in London, New York, Tokyo, Singapore, Zurich, Hong Kong, and Frankfurt.
6. It favors the exchange of funds between different countries; there are countries with excess liquidity and countries that need such liquidity.
In this market, there is a wide variety of participants, from central banks to individuals. At Minex, we are interest in your finances, and investigate the price of currencies before making your purchases.
What is the Forex Trade Market and How Does it Work?
In recent days we have heard about inflation and the loss of value of money. In this sense, numerous experts have encouraged the population to invest and move their money so that, with this technique, they do not lose purchasing power.
The forex, foreign exchange market, or currency trading is one of the most used investment mechanisms in the world. As its name suggests, this system is based on the trading of currencies in world markets. These markets are operational 24 hours a day and, as a consequence, require the use of moving averages for their control.
How does Forex Trade Work?
The foreign exchange market, as we already mentioned, determines the exchange rates according to one currency or another. The price determines by the exchange rate and this can vary according to the demand for the currency. This is the main reason why prices go up and down daily.
The exchanges are directly between the parties. Which are the participants of the foreign exchange market can be from central banks to individuals.
An example of the foreign exchange market can be a very common action: if many people are interests in buying euros, the price of the Euro will rise. This can happen daily with any of the currency types within the currency market.
At the moment when one currency is selling, another one is also selling together. The first currency is called Base Currency and the second, Quote Currency. The purchase and sale of currencies is carried out based on the Base Currency and the prices that will be shown in the foreign exchange market are the purchase price and the sale price of each currency.
Learn to Forex Trade – Currency Pairs
The foreign exchange market trades the exchange rate fluctuations between currency pairs, such as the Euro and the US dollar, which express as Eur/Usd. In quoting foreign exchange rates, the first currency in the quote is known as the base money and the second currency is the quote currency. The exchange rate for a currency pair looks at a number such as 1.1235. If the Eur/Usd pair is trading at 1.1235. It means that it takes 1.12 dollars (and 35 hundredths) in US dollars to equal one Euro.
The most traded currency pairs are naturally those involving the most widely used currencies around the world: the US dollar (USD), the Euro (EUR), the British pound (GBP), and the Japanese yen (JPY).Forex trading is the immediate act of buying one currency and selling another.
The combination of these two currencies constitutes what is known as a currency pair. Currencies always trade-in duos, and each currency in a pair represent by a unique three-letter code. The first two letters of the code represent the country, and the third letter identifies the currency, such as JPY = Japanese.
Currency prices are known as rates, and they express the value of one currency in terms of the other.
Forex Trade Strategies – Fundamental Analysis
There are two basic strategic methods for forex trading: the fundamental and the technical.
Fundamental analysis is generally more favored by long-term traders – those who buy (or sell) and hold a currency pair for a long period. A fundamental study is an analysis that is based on economic conditions, both within specific countries and globally.
Through the greatest trading days, numerous economic reports were released from the various countries of the world. The signs, positive or negative, coming from such reports are the main drivers of the main changes in exchange rates between currency pairs. If, for example, several positive reports release on the UK economy within three months The value of the pound sterling against other currencies such as the Euro and the dollar is likely to rise.
Among the most significant economic reports released, the ones most likely to impact currency markets, are the Gross Domestic Product (GDP), the Consumer Price Index (CPI), the Producer Price Index (PPI), various reports on employment and consumer confidence, and the political decisions of central banks.
Fundamental analysis can also be based on global economic trends. For example, if the use of cotton increases worldwide, the economies of countries that are large cotton producers can expect to benefit, and the relative value of their currency to increase.
Interest rates, set by a country’s central bank, are an important factor in determining the relative value of a currency. If investors can earn significantly more on money deposited in interest-bearing accounts. In the United States than on interest-bearing accounts in other countries. That makes the US dollar more attractive and therefore likely to increase its value. value relative to other currencies.
The foreign exchange (Forex), also known as forex exchange or foreign exchange, is where the money is. Forex trading amounts to approximately 6.6 trillion dollars (yes, trillion, not billion) a day. By comparison, the roughly $700 billion daily bond market and $200 billion daily stock trade.
Therefore, around the world seem relatively small in size. The total daily value of all the world’s stock trades is inequivalent to just one hour of forex trading each day.