THE foreign exchange market is the largest and oldest financial market in the world, with a daily turnover approaching US$2 trillion. It is also the biggest and most liquid market - running 24 hours a day, five days a week, circling the globe with financial transactions.
By its nature, there is always a bull market going on somewhere (you just have to know where to look), offering opportunities for investors. Traded in pairs, each currency is measured against another one, meaning that for every bear market, there has to be a corresponding bull market. As we enter 2010, there are signs that the global financial crisis is easing up. In the US, the economy has just started growing again for the first time in more than a year; while recent data showed that Europe has been lifted out of the deep recession. Asia has also recorded signs of the recovery picking up. Australia recently raised interest rates in order to prevent house price and wage inflation. China is reporting that it will see substantial economic growth this year.
Finance ministers from the Asia-Pacific Economic Cooperation (Apec) forum have also called for greater exchange rate flexibility. In a joint statement, they said Apec members should follow 'monetary policies consistent with price stability in the context of market-oriented exchange rates that reflect underlying economic fundamentals'.
The dynamic forex market is affected by several elements including economic, political and psychological factors - people who are interested in forex trading should ensure that they are aware of these factors. For example, the following macroeconomic issues are all likely to influence forex markets:
* Government budget deficits/surpluses
* Balance of trade levels and trends
* Inflation levels and trends
* Economic growth
Equally important is the political situation in the country of the currency. For example, the markets may perceive that an incoming political party may foster better relationships with its neighbours or trading partners, which may cause that country's currency to strengthen.
Market psychology also plays an important part. If most participants think a currency will fall, and have taken a position in the currency to reflect this view, then some market professionals will think the market is prone to a large move up. This situation is often called a 'squeeze' - because if the currency moves contrary to what participants think, the subsequent rush to liquidate positions and minimise losses causes the market to move even further.
There is no formal exchange for currency transactions. Instead, transactions are conducted over-the-counter (OTC) and rates at any one time are defined by the major global institutions - typically investment banks - who will conduct many trades every day on behalf of corporations, governments, local authorities and trading desks.
In the past, foreign exchange trading was limited to these large players. However, recent technological advancements, along with the development of online trading platforms, have made it possible for retail investors to take part in the forex market.
Online trading platform providers like IG Markets allow retail investors to trade a wide range of markets, including forex contracts, with spreads starting from just one pip. These online trading platforms typically also provide traders with free technical research tools and access to real-time financial news reports, allowing traders to make more informed decisions.
There are also several ways that one can manage and mitigate risks in forex trading. For example, consider trading 'mini-FX' contracts. With a full contract being 100,000 of the first-named currency, mini-FX contracts allow traders to manage smaller contract sizes at 10,000 of the first-named currency. Traders can also choose 'limited risk trading', where 'guaranteed stops' are placed to guarantee that the provider closes the position at exactly the chosen level should the market move against the trader. This allows the trader to set the 'maximum possible loss' in advance, effectively limiting liability with risk protection.
Although forex trading offers great potential profits to retail traders, education and a proper mental attitude to trading should not be neglected.
Yes....after paying $3.4K for the course plus the funding and so on. Frankly....didn't quite understand much.
ReplyDeleteFor trading....not likely to do much since it is like putting my neck out for chopping!
No point....will have to do more studies to have a better understanding on the working of a smart forex trader first before risking more money in the trades!