FOREX Trading

The FOREX (Foreign Exchange) market is the market in which different currencies are traded. It is the largest, most liquid financial market in the world with an average traded value that exceeds € 3.18 trillion per day.

What is the Forex Market?

Financial centers around the world function as anchors of trading between different types of buyers and sellers everyday except weekends.

The Foreign exchange market determines the relative values of different currencies

There are huge speculative returns that can be made by predicting the value of international currencies.

How does the Forex Market work?

Traders in foreign exchange include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors.

Commercial companies

Central banks

Foreign exchange fixing

Speculators

Investment management firms

Retail investors

Who trades in the Forex Market?

In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency

How does the Forex Market work?

20%

14%

14%11%

8%

8%

8%

6%

5%5%

Deutsche BankBarclays CapitalUBS AGCitiJP MorganHSBCRBSCredit SuisseGoldman SachsMorgan Stanley

Top Forex Traders (Global)

• Transactions in foreign currencies are not centralized on an exchange, they take place all over the world.

• Dealers quote all major currencies.

• After the currency is decided, the investor purchases through a dealer.

• Investors speculate on currency prices by getting a credit line and vastly increase their potential gains and losses known as marginal trading.

Functioning of the Forex Market

Did you know?

The exchange market originated centuries ago in the form of the Barter system, whereby the value of goods was expressed in terms of other goods.

Right: A “labour for labour” note used in the barter system

• There is no unified or centrally cleared market for the majority of trades.

• There are many inter-connected markets where different currency instruments are traded.

• A particular currency's quoted price is usually the London market price.

• Major trading exchanges: EBS, Reuters and some major banks

Trading Characteristics

• Foreign Exchange Market in India works under the central government in India.

• The Indian foreign exchange market is made up of the buyers, sellers, market mediators and the monetary authority of India.

• The Foreign Exchange Management Act, 1999 or FEMA regulates the whole foreign exchange market

• The foreign exchange market India is growing very rapidly and the annual turnover of the market is more than $400 billion.

The Indian Forex Market

• Interest Rates

• Economic Growth

• Geo-Politics

• Trade and Capital Flows,

• Merger and Acquisition Activity

Factors Predicting Forex Market Movements

• Always buy currencies from countries with high-interest rates and finance these purchases with currency from countries with low-interest rates.

• As a country's interest rate rises, the value of the country's currency also tends to rise

Interest Rates

• The greater the possibility that the central bank will raise its interest rates to tame the growth of inflation

• The higher a country's interest rates, the bigger the likelihood that foreign investors will invest in a country's financial markets.

• Currencies represent countries rather than companies, they are political as well as economic assets.

• The key to understanding speculative behavior with respect to any geopolitical unrest is that speculators run first and ask questions later.

• The general rule of thumb in the currency market is that politics almost always trumps economics.

Economic Growth

Geopolitical Factors

• Trade flow refers to how much income a country earns through trade.

• Some countries are sensitive to trade flows, while others are far more dependent on capital flows.

• Before you decide on a currency, categorize the country as dependent on either trade flow or capital flow.

Trade and Capital Flows

• Mergers and acquisitions do not affect FOREX trading extensively.

• However, it can be the most powerful force in staging near-term currency moves.

• This activity occurs when a company from one economic region wants to make a transnational transaction and buy a corporation from another country.

Mergers and Acquisitions

Market never sleeps, 24 Hr market system

Best option for those seeking consistent investment moves

Simply make trades whenever you see fit

Whether its Bull or Bear, FOREX is always stable

Controlled by a huge market and not any corporation.

Can't always rely on past results to predict future trends

Fluctuations and other factors make trading foreign exchanges on margin very risky.

High degree of leverage involved

The basics of FOREX are very easy to understand. However, actual currency trading can be relatively tricky.

To analyze the foreign exchange market you must be acquainted with the interplay of the various factors affecting the trade.

There are no specific trading style that will offer an unblocked path to profits and success. A smart trader will always pick a method he feels comfortable with. Although, it is important to adhere to the basic principles combining it knowledge of the market and experience for a successful career in the FOREX market.

Conclusion

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