Knowing the Forex Market

Posted by Daytrader on October 1, 2009 under Daily Forex review | Be the First to Comment

The very popular forex market is a derivation of the word “Foreign Exchange Market’.  This market is famous all round the world and it’s the largest financial institution which is earning US$1 trillion on average daily.

A few terminologies and technical terms are explained below:

Spot and Forward Foreign Exchange

Transactions take place in forex market. These transactions are widely divided in to two categories.

Spot Foreign Exchange

These transactions are performed mostly for genuine currency exchange. Genuine currency exchange means delivery or closure for a value date two business days later.

Forward Foreign Exchange

These transactions are made for a future date. These dates are few times for a period of one year or beyond. In forward market the sale and purchase of currencies is protected from the changes of market trends.

Difference between Foreign Currency and Foreign Exchange

People who have had an experience of traveling outside the country would have some vulnerability to foreign currency and foreign exchange.

The difference between two is clear by the example

If you are living in India and let say traveled to US. For spending there you must have exchanged your home money i.e. Indian rupees for US $.  The currency of US is foreign currency and the process of exchanging the home currency into foreign currency is foreign exchange.

The Foreign Exchange Market

Forex market does not require a trading floor. This is why these markets are not located at a particular place. The trade is all based on different communication sources such ad telephone and computers. These sources inter link the traders and trading centers all round the world.

Reasons for Buying and Selling Currencies

Currencies are bought and sold in the forex market. Different factors influence prices and resulting in to shifts and movements of the demand curve. The traders estimate the best time to invest in derive out huge profits.

The two fundamental reasons for selling and purchasing currencies are:

An estimate of 5% turnover on daily basis is generated from production companies and government that trade with foreign countries or have to convert their earned profits in to home currency.

The remaining 95% are profits coming out of trade and/ or speculations.

Currency Speculation

Speculators seek for opportunities to make profits in response to the trend in market. They invest in wisely after analyzing keenly the market situations.

Speculators prefer in trading usually with the most commonly accepted currency. These currencies are most liquid assets and are called “the Majors.” In present day a large percentage of everyday transactions necessitate trading of majors, such as US dollar Japanese Yen, euro and a few others.

Rewards and Risks in the Forex Trading Market

Forex trading is highly profitable trade for those who are aware of al the dimensions of forex market and possess experience. ‘No pain no gain’ is completely applicable in forex trade. The fear of risk is always there to haunt the investors from investing in.

Before investing in make it certain that you are completely aware of the facts of markets and you have completely understood the purpose of investments. The most important is to invest what you can afford to loose as for being on safe side even when things go wrong.

Scalping system in forex market is getting fame. They claim that you can make a gigantic profit in no time on weekly and even daily basis. They arrogate on having exact estimates of figures. Such claims make me laugh out. They show you the graphs that go up and up and never fall down. However when you invest in the graph is always falling.

These scalping systems are base on illogical basis and therefore are ineffective.

It’s prudent that innumerous traders having different objectives of investments influence market price. It’s farcical to make out and estimate of the changes that are expected to be happened in few hours by this group.

The sentiment of greed pulls the traders towards these scalping systems. The vendors put up an attracting advertise supported by fake comments and stories just to make the trader believe in it.

To be successful in forex trading I will highly suggest you to forget about day trading. Making big gains is possible if you avoid the scalping systems. Better to know the facts than being fooled.