Little Insights about Forex Market
A Foreign Exchange or a Forex Market is the world’s largest financial market. It plays a vital role in global economy. Everyday trillions of dollars are exchanged from one currency to another. This currency exchange is essential for international business. Forex market participants include government, businesses and investors. Governments use forex markets to implement policies, for example when conducting business with another country like borrowing money, lending money or offering an aid. A country needs to convert its currency into a foreign currency. Businesses use forex market to facilitate international trade. For example, they may need to convert payments for business services part overseas or to exchange payments from their international customers into their preferred currency. The investors use forex markets to speculate on changes in currency prices. Currency prices change almost constantly through the week because currency market is open round the clock because of global nature of the economies.
Let’s go over some basics about how trading in forex works. When you are trading forex, you are not just trading one product, you are trading two currencies against each other known as currency pair. The quote for forex pair defines the value of one currency relative to the other currency. The easiest way to understand a quote is to read the currency pair from left to right. Let us understand using an example EUR vs USD, if EUR/USD is trading at 1.20 then it means 1 Euro is equal to 1.20 US Dollars. Even if two currencies are involved, the pair acts like a single entity just like a stock or a commodity. Just like trading a stock, when investors buy a currency pair and its price increases, they get profits. Investors can also profit if they short a currency pair and its price decreases.
Let’s look at some key aspects of the forex market. First, we will talk about margin. When you trade on margin, you need to just put up a percentage of the total investment to enter into a position. This amount required to trade is called Margin requirement. When you trade other securities like stocks, trading on margin means you are borrowing funds from your broker. However, forex trades can only be covered using funds in investors forex account. Investor cannot borrow funds for a forex trade, they need to transfer funds from their bank account into their forex trading account. Forex margin requirements vary depending upon the currency pairs and the size of a trade. Currency pairs trade in specific quantity known as Lots. These lots may vary from standard lots (100,000 units) to mini lots (10,000) units. Margin requirements can be small as 2% of the trade or as large as 20% of the trade which may vary from broker to broker. This brings into account another key element of forex market i.e. leverages which allows investors to control large investment with a small amount of money.
The resultant of a trade is either a profit or a loss. So, trade with your strategy and nurture the plant of your investments.
——We at Capital Street Fx with a team of experts are here to help you in nurturing your plant of investments —–
—– Happy Investing—-