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adamsmiths

Basic Concepts About Forex Market

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The forex market is the largest financial market in the world. One need not to do daily trading so as to participate in the market. A person exchanging currencies while travelling overseas is also a part of forex trading.

The forex market comprises of banks, commercial companies, central banks, investment management firms, hedge funds and retail forex brokers and investors. In a forex market, buying, selling, exchanging and speculation on currencies can be done by the participants.

One must be aware of some of the basic concepts of the forex market before trading in the market. Some of the basic concepts are discussed below:

1. Following eight major economies: In a forex market, the participants need to follow eight major economies in the world. The eight major power which dominate the forex market are:

• United States

• Eurozone ( Germany, France, Italy and Spain are the main)

• Japan

• United Kingdom

• Switzerland

• Canada

• Australia

• New Zealand

The economies of the eight major powers have the largest financial market. Daily economic data is released from these countries. This data helps in better assessing the economical health of each country and do the trading accordingly.

 

2. Yield and Return: Trading in the foreign exchange spot market involves buying and selling two underlying currencies. Quotation of currencies are done in pairs, e.g. if the EUR/USD pair is quoted as 1.3500, then it means that it takes $1.35 to purchase one euro.

Transaction in foreign exchange involves simultaneous buying of one currency and selling of another one. Moreover, there is an interest rate for every currency as has been set by the central bank of the respective country. The trader, on the one hand, has to pay the interest for the sold currency; while on the other hand, one gets the privilege of earning interest on the currency being bought.

 

3. Leveraging Returns: Leverage as high as 100:1 is offered by the forex market. But leverage should be used wisely as one can earn huge profits if he is correct, else he has to bear huge loss. Nevertheless using stops can cap the losses. Moreover, protection of margin watcher is offered by most of the brokers. Margin watcher is a type of software which keeps a watch on one’ position 24 hours a day and five days a week. Liquidation is automatically done by the software once margin requirements are contravened.

 

4. Carry Trades: The dynamic nature of currency values has led to the led to the evolution of one of the most sought-after trading strategies –carry trade. In this strategy, a currency with low interest rate is borrowed by the trader. The trader then utilises the fund o buy a different currency which is giving a higher interest rate.

 

This article is sponsored by fibo.

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The very most essential elements of any trading or doing is the basic or core matters. Knowledge is one of the most important things to become a successful trader. Even the experienced traders also have a need to get the knowledge.

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Forex is largest market and getting the basic knowledge is not easy or one day work. But it is also not too difficult for learning. If one start today then he can learn it as he start studying.

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The aim of forex trading is simple. Just like any other form of speculation, you want to buy a currency at one price and sell it at higher price in order to make a profit.The forex market is the quiet giant of finance, dwarfing all other capital markets in its world.The stock market, where investors have thousands of stocks to choose from, in the currency market, you only need to follow eight major economies and then determine which will provide the best undervalued or overvalued opportunities. These following eight countries make up the majority of trade in the currency market:

  1. United States
  2. Eurozone (the ones to watch are Germany, France, Italy and Spain)
  3. Japan
  4. United Kingdom
  5. Switzerland
  6. Canada
  7. Australia
  8. New Zealand

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