People looking to break into the trade business often find themselves unsure what to do, especially with a market as flippant as it has been for the last decade or so. Currencies rise and crumble every day, just like stocks and it is difficult to determine where to invest and how.
This is where the foreign exchange market bets known a Forex, enters.
What’s Forex about?
As mentioned before, Forex is commonly used as an abbreviation for “currency market” or “foreign exchange”; and it’s traditionally employed by investor and speculators in order to trade the currency of one country for another one.
This is particularly helpful to large multinational corporations which have businesses all over the world and therefore have to pay wages in different nations, and also to risk takers better known as currency traders who try to predict how the exchange rates will fluctuate in order to take advantage of them and generate their earning. This activity is not unlike the speculations made in the stock market.
Why do rates change and what’s an exchange rate?
To begin with, the exchange market is the place where the relative values of different currencies are determined. Said values depend on the political, industrial, economic, and even weather situation of the country which the currency belongs to. For this reason it is highly unlikely for 2 currencies to be identical.
The fluctuation in this market is similar to the one of the stock market, with everything being tracked back to the offer and demand. If there’s an increase in the currency demand with a decrease of the offer, currencies will rise, but if the offer is high and the demand low, the currency will most likely fall.
How are Forex speculations made?
Much like with stock, investing in Forex is all about anticipating what’s going to happen to the currency of a country, but unlike it, there’s little to no inside information on the comings and goings of the currency market. The information is basically available worldwide thanks to the Internet and the different media sources, therefore, the predictions made by currency traders are usually the results of 2 currency market analysis methods: the Fundamental Analysis, and the Technical Analysis.
Fundamental Analysis – The most natural way to make Forex market predictions. It consists of evaluating life events as well as macroeconomic data relevant for trading currencies. These events and data generally come in the form of central bank meetings and decisions, weather reports, interest rates, political-economical-industrial news. etc.
Technical Analysis– The one that relays in numbers. The principal of this method is to analyse past technical data to forecast future technical data. To do so quotes, market data numbers, charts, the volume of supply and demand, both simple and complex indicators, and past market data are used to make predictions of the market and how this may move.
What else is needed?
Trades are made using borrowed money, with a limit to how small the trade can be. Traditionally the amount would be of at least 1,000 units, better known as a lot. The lot as mentioned previously is often the result of a lent amount which allows you to get more leverage -units-, but due to the nature of the currency market and tides, it often suffers. The leverage can translate in both gain and losses.
This is why no matter how much you learn about Forex, it’s a good idea to count on Forex brokers like AlfaTrade, especially dealing with online Forex, due to the ability of these companies to provide real-time market information for trading and bringing orders to the Forex market.