The Forex market is where the currencies are traded and is the largest trading market with over $5
trillion in daily turnover and highly liquid financial market, operating 24 hours a day, five days a
week and traded online with constantly varying prices.
Exchange rates fluctuate and change
constantly due to the dynamic market forces of supply and demand. The Forex Market doesnt have a
central exchange or market place, all the trading is done via electronic computer networks.
Currencies are mainly exchanged for speculative reasons, where traders usually buy
currencies so that they can later sell them with a profit at a higher price. Banks, private
businesses, investment agencies, investors and retail traders, all speculate and trade with national
currencies on the foreign exchange market.
In the Forex market currencies are always combined and traded as pairs, Trading usually occurs via
a Forex brokers.
Every time a currency is always priced and quoted in comparison with another
currency, which makes a currency pair.
An example of a currency pair: EUR/USD, this refers
to the European Euro and the United States dollar. The main currency pairs which are traded around
the world include EUR/USD, USD/JPY, GBPUSD, USD/CAD, USD/CHF, AUD/USD, and NZD/USD.
The forex market comprises of currencies from all over the world, making it difficult to predict exchange rate movements, as a number of forces and factors come into play to control the price movements. However, like most financial markets, the forex market is also impacted by the forces of supply and demand.
Supply of currencies is fully controlled by central banks, where certain actions and announcements can have a significant effect on a country’s currency price.
A strong and sturdy economic outlook is vital for the performance of a country’s currency. Thus, news and information would play a key role in encouraging traders to invest in a country’s currency and increased overall demand.
If analysists and traders identify that a currency performance is pointed towards a certain direction based on news reports, then they will make trades accordingly and may get others to follow them, ultimately increasing or decreasing demand of the currency.
conomic data provides insight and understanding on the performance of an economy. Also, it can be a great tool to gain insight on the probable actions the central bank of a country might take with the ongoing trends and stats figures.
A countrys credit rating is an independent assessment of its likelihood of repaying its debts. When a country has a high credit rating it can be portrayed as a better choice of investment, when compared to a country with a lower credit rating.