In the forex market, one currency changes hands for another. It is important for new and aspiring forex traders to know s few basics of FX so that they may avoid making some rookie mistakes. The first step is to understand what forex entails.
In addition, there is a need to understand why this market has become so popular. There is no other trading market that attracts the same activity as forex trading. All you need is a forex trading account Singapore and you are set to begin buying and selling currencies.
Understanding Forex
The forex market is driven by the exchange of prices for currencies. While there are many different currencies in the world, most forex payments are made using the U.S dollar, the euro of the Japanese yen.
Other strong currencies include:
- The British pound
- The Swiss franc
- The Swedish krona
- The Australian dollar
Forex trading is a continuous process throughout the world. Currency is traded via methods such as:
- Swaps
- Spot contracts
- Spot transactions
Forex Traders
Anyone can invest in foreign exchange. Individuals, financial institutions and even companies trade on the foreign exchange market.
Individual Investors
The trades made by individuals may not be as high as those made by banks and corporates considering the amount of money in question. Nevertheless, with the rapid growth in popularity, many people are jumping on the bandwagon and making a significant amount of money.
Individual investors look at technical factors and fundamentals such as:
- Price patters
- Technical indicators
- Resistance
- Support
- Price patters
- Interest rates
- Inflation rates
- Monetary policy expectations
Central banks are mainly the movers of forex markets through monetary policy, exchange regime setting and currency intervention. Forex trading has speculation in common with other forms of trading and every trader hopes to make significant profits.
Banks
The interbank market is the greatest trader in this category of investor. Various banks of different sizes trade currency with each other. This is done via electronic networks. Banks also trade on behalf of their clients. They also make speculative trades from their trading desks. The bigger banks command a larger percentage of currencies traded than their smaller counterparts.
Central Banks
Being the movers of the markets, central banks play a significant role in the forex market. Their open market operations as well as interest rate policies are largely responsible for influencing current rates.
In addition, they are responsible for forex fixing (exchange rate regimes by which currencies trade in the open market) which are divided into three types:
- Floating
- Fixed
- Pegged
Corporations
Export and import firms use forex exchange transactions for their business transactions. Companies trade in forex to raise capital and make extra money for the company. They also engage in the forex market to hedge the risk that comes with forex trading. Hedging also increases safety for offshore investments.
Portfolio Managers and Hedge Funds
Other key investors in the forex market include hedge funds, pooled funds and portfolio managers. These ones actually come in second to the banks. Investment managers responsible for big accounts such as pension funds and foundations.
They are in charge of trading on behalf of these accounts. if a manager has an international portfolio, then he or she must buy and sell currencies which they then trade on the forex market.
Portfolio managers are also charged with making speculative trades. Speculative trades are a huge part of investment strategies. Many hedge funds also execute them.
Conclusion
The bottom line is the money market is a major investment platform for anyone including private businesses to venture in. The exponential rise in popularity is not for nothing. There is a lot of information on and offline for investment enthusiasts who may be yearning to try their hand in forex trading.
The fact that the money market is the largest investment platform globally says a lot about its credibility. It is open to everyone from individuals to corporate bodies. Financial institutions even form alliances to trade in it.
