Top Forex Brokers:Understanding Forex Trading
Many people ask how Foreign exchange is different from Foreign Currency. This question is commonly asked by those who travel a lot. If you travelled from China to India, you would exchange your home currency to Indian rupees. In this situation, the Indian Rupee would be known as the foreign currency while the process of exchanging or converting one currency into another is known as foreign exchange.
Unlike most other financial markets, the Forex market is not rooted to a single place. Instead, the transactions are often done through telephone and computers. These devices, with the aid of internet, link two or more dealers in different trading centers all over the world. The Foreign exchange market is an Over the Counter market. This is because all the transactions take place between two traders through telephone or other electronic networks. Forex Trading is not a centralized system.
Why would Traders Buy and Sell Currencies?
There are many reasons why one should invest on Foreign exchange. First, and most importantly, Forex is the largest financial market in the world and every day around 1 trillion dollars are traded. The platform has been the largest for 3 decades while the turnover rate increased with time. Another reason why you may want to invest is that Forex gives more leverage than any other business. Without having to act on any strategies or secret formulas, you can invest your money and earn huge profits. You do not need be an expert in the field either. With only technical analysis you can earn a lot. Also, Forex is open 24 hours. This means you do not have to sacrifice other daily tasks to invest here. You can finish your work during the day and invest at night. It does not have a physical location and is mainly operated through the internet. So, you can access it from anywhere. Forex does not take any commission from your investments, so you can enjoy the complete amount you earn on profit. This saves a lot of money for those who invest regularly. Forex’s high level of liquidity is another factor that attracts traders. Around 90 percent of the total transaction consists of seven major pairs. This means that these currencies have price stability, smooth trends and high liquidity levels. The final reason is that Forex has steady trading prospect. Trading takes place all the time and the market is never inactive. As Forex trading involves buying and selling of currencies, traders are always working in either a rising market or a falling market.
What Affects the Currency Prices
There are many factors that affect Currency prices. Most of these factors are economic and political, like inflammation and political instability. Sometime Governments take part in the Forex exchange to influence the value of their currencies. This is done by flooding the market or conversely buying to increase price. This system is called the Central Bank intervention. All these factors and large market orders might lead to volatility in currency prices. Before investing traders take decisions based on technical and economic fundamentals. Expert traders take help from charts, trend lines and mathematical analyses. These help them identify trading opportunities. Fall and rise of prices are predicted by interpreting economic information and news. Government-issued indicators, reports, and even rumors are often helpful.
For traders who are educated and experienced, trading foreign currencies is a potentially profitable opportunity. However a very high risk factor is associated with it. One should always be prepared for losses. A very wise thing to do would be to never invest money that is important to you. You should only invest the amount of money that you can afford to lose. If you are a new, make sure you read and learn enough about Forex trading. There are many helpful forums in the internet that guide beginner traders through the journey. Forex is a great platform for investment.
Top Forex Brokers
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HotForex-The Best Forex Broker
