Forex Trading
The Foreign Exchange market, commonly referred to as the "Forex" or "FX" market, is the largest financial market in the world, with a daily turnover of approximately $1.9 trillion. Traditionally, Forex trading participants have always included major international commercial and investment banks, large multinational corporations, global money managers, currency dealers, and international money brokers. More recently, online brokers offering FX trading platforms have given smaller financial institutions, futures traders, and private investors access to the same liquidity and tight spreads once available only to the larger players by offering a gateway to the primary.
There are three reasons to participate in Forex Trading: One is to facilitate an actual currency exchange, whereby an international corporation, for instance, may convert profits earned in foreign currencies back into its domestic currency. Hedging is another common commercial use of the Forex market -- corporate treasurers and money managers routinely use the FX market in order to hedge against unwanted exposure to future price movements in the currency market. And finally, speculation for profit represents the most popular use of the Forex market -- in fact, estimates suggest that more than 95% of all Forex trading represents speculative activity The Forex market, unlike other financial markets, has no physical location or central exchange. Rather, it's an over-the-counter (OTC), due to the fact that participants deal directly with one another via the telephone or an electronic network. There's a live, actively trading Forex market continuously from Sunday evening through Friday afternoon. Trading takes place in financial centers all over the world, including New York, London, Tokyo, and many others. These financial centers are linked to one another in a unified, cohesive, international market, so at any given time, around the clock, there's a major financial center open where individual speculators from all over the world are conducting business.
Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, the central banks of various governments occasionally intervene in the forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely, by buying in order to raise the price. Any of these factors, as well as large market orders, can cause high volatility in currency prices.
Currency traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trend lines, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities. Fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumor.
The most dramatic price movements, however, occur when unexpected events happen. These events can range from a central bank raising domestic interest rates to the outcome of a political election or even an act of war. This creates a very unstable, volatile market with high risks.
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