Foreign Exchange Market

Foreign Exchange Market

FOREX or Foreign Exchange Market is a market where currencies of nations are being sold and bought freely. Foreign currencies are simultaneously traded from around the world through local and global markets. The conditions of the foreign exchange market can vary at any time in reaction to real-time circumstances.

The only aim of the investor is to gain profit from the movements of foreign currency. In trading currencies, the trader should buy only when he expects that the currency will increase in value. So when the currency increases value then he must sell it back in order to lock in a profit. For example a trader bought 1,000 euros when EUR/USD rate was 0.8400. This rate is also referred to as "FOREX rate" After six months the market rate increases to 1.3500, then trader sells his 1,000 euros. He gained a profit of 510 USD from that trade. The investor made a good trade he just compared the forex rate, EUR/USD rate 0.8400 increases to 1.3500.

It takes two currencies to trade so trading of currency is always done in pairs, such as EUR/USD or GBP/USD. The first currency is the base currency where it is the basis for the buy or the sell, while the second is the quote currency or the counter. For example, if you feel that the US dollar will weaken you would BUY EUR/USD which means you bought euros in exchange for USD. You expect that the euro will go up against the US dollar. If you think that the economy of the US is stronger against the euro then you would SELL EUR/USD. By doing this you expect that the US dollar will go up against the euro.

The price currencies are constrained by a mixture of political and economic conditions, but nearly certainly the well-nigh significant are the interest rates, inflation, political stability and global trade. Governments take part in the market by either swollen in market with their native currency in an attempt to diminish the price or, to buy in order to lift up the price. This is better-known as central bank intercession. Any of these components can induct highly changeable in currency price. The volume and the size of the forex market always make it hopeless for someone to force the market at any length of time.

The main participants of the foreign exchange market are Exchange markets, commercial banks, central banks, commercial companies, investment management firms, retail forex brokers, and private persons.