Online Forex Trading

Market for currency trading

Currencies were exchanged since decades for international trade. This exchange led to the emergence of Forex market, wherein the asset being bought and sold is currency. You buy a currency paying a different currency and then sell it on a later point in time fetching a higher or lower price for the same. This is the basic activity of Forex currency trading system. Value of currencies is relentlessly fluctuating and so are the rates of exchange. Whenever there is a price fluctuation for a currency its exchange rate changes in relation to another currency.

Market for currency trading

There are multiple factors affecting the price of a currency. The basic rule of demand and supply determining the price line applies here. When the demand for currency rises its value rises and when its supply increases its value falls. Demand for currency within a country increases when people tend to hold their assets and savings in the form of money. This happens when interest rates are high. Level of financial activity and economic growth, government policies, political stability, etc further affects the value of money.

Value of money depreciates when there are high levels of inflation, low interest rates, or some sort of economic crisis. Thus demand and supply variations cause the rates of exchange to fluctuate which determine the volume of currency trade. Speculative currency trading further affects the prices.

A unit of currency in one country may be higher or lower in value compared to other countries. This difference in value of money across the world is the basis of currency trade. For instance, when you exchange your local currency for a foreign currency that has a lower value you earn more units of foreign currency, and if the value of this foreign currency rises due to various fiscal factors you can convert it again to your local currency which will be more than the initial amount of money you used to buy the foreign currency. This additional units earned are your profits. This easy profit making business by simply converting currencies sums up to Forex currency trade.

In Forex market currencies are traded in pairs. It is a simultaneous buying and selling procedure. A currency is bought by selling another. Traders can decide the frequency of their transactions. Some traders indulge in several trades in a single day, buying and selling continuously and earning small profits from each transaction. Some opt for day training while some take weeks to close a single trade.

It is always considered safer to invest in major currencies. Major currencies are the currencies of some of the well developed economies in the world. Such currencies are less susceptible to fall in value beyond a certain limit. Hence currency trading market is dominated by these few stronger currencies. Scalpers and day traders concentrate on major currency pairs. Minor currencies of countries with low growth rate pose a higher risk of loss. But position traders who keep their positions alive for a week or so tend to trade in different currencies and still earn high profits.