22:58, 2011-Dec-5
Forex as you may be aware of is a trading system in which exchange of currency takes place. The aim of traders here is to make profit from currency trading and reaping benefits from change in valuation of any particular currency in comparison to other currencies. Forex Market It may be surprising for you but any one can trade $300,000 and invest a meager $3500 for that. But it is worth mentioning here that foreign exchange trade is very risky and a person can lose his investment. So you need to cautiously choose the currency for trading. You will be able to figure out how big the forex market is by the fact that according to BIS the global trade volume is nearly $4 trillion daily. Common Terminology If you are interested in forex trading then it is important to know about the common terminology that is part of trade and this is what we will be looking at in this section. 1. Spot is one form of transaction in which delivery happens two days later. These are transactions with short time schedule, there is no contract, dealing is in cash, involves a direct exchange and there is no interest amount involved in it. 2. Forward transactions assist in managing risks involved in forex trade. Here the actual transaction only occurs on a future date. The exchange rate gets prefixed for a coming date and transaction occurs on that date based on the rate that was fixed and rates prevailing in the market are completely ignored. 3. Swap is one type of forward dealing where both parties exchange currencies and agree on reversing it on a future date. 4. Future transaction involves fixed time frame for the contract which is normally 3 months. This future dealing also consists of the contract�s interest value. 5. Option is a technique in which owner is under no obligation to exchange currencies as per the rate agreed. Who are part of Forex Market? A number of entities together form the forex market which includes different commercial companies, non banking foreign exchange companies, banks, hedge funds, companies involved in money transfers, central banks, firms doing investment management, retail foreign exchange traders and forex fixing companies. What Determines Forex Rates? Three fundamental things determine the prevalent forex rates and these are current political condition, market psychology and various economic factors. 1. Political condition involves both international and regional events and significantly influences the forex rates. Foreign exchange rates are very much dependent on how stable the political conditions are in a country plus economic conditions of that as well as its neighboring countries. 2. The economic factors consist of different things such as balance of trade, fiscal policies, budget deficits, monetary plans, inflation level and economic policies of government. 3. Psychology of the market has significant role to play here and is primarily influenced by things like anchoring, flights to quality and many indicators like money supply plus trade balance. A Final Note To conclude we would say that right analysis of financial indicators and also the trends prevalent in the market are vital if you are interested in going into forex trading. To make the right investment as well as make a good gain from it you will need to have knowledge of these foreign exchange market rules.
