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What is Forex Currency Trading?

The forex is a 24-hour worldwide liquid or non-liquid market for the trade of currencies. This market decides foreign currency exchange rates for each currency in terms of supply and demand. It involves all aspects of trading, buying and selling currencies at decided or current prices. Forex market is highly volatile and can be affected by various factors like political and economic unrest, change in interest rates and even unexpected disasters that may lead to sudden change in the value of a country’s currency.

There are three major currency pairs in the forex market. They are the U.S. dollar/Japanese Yen, Europeandollar/Swiss franc and U.K. pound/Swiss franc. Among these, euro/dollar is the most traded currency by far. This article takes a brief look at the regional pairs and how they are affected by various factors.

The euro and dollar exchange rate is highly dependent on the status of the European Central Bank. If the bank lowers the EUR/USD, the euro will appreciate in value and if it increases, the dollar will depreciate. In other words, depending upon the status of the bank, the exchange rate for EUR/USD may either go up or down. There are major European countries, which are more commonly involved in the forex market. These are: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakiaakia, Slovenia, Spain, Sweden and the United Kingdom.

There are various types of trading in forex market like: spot exchange, forward contract, swap and futures. Spot exchange is the most widely traded market as it involves the exchange of one currency immediately for another. It is the easiest to trade and least complex. Forex traders who are involved in the spot market are required to keep a constant monitor on two things: the opening and closing prices of a particular pair that they intend to trade.

Forex market is highly fluid and the values of currencies are not fixed. In the same way, the interest rates are also subject to change. In some countries, there are several banks that provide credit to businesses and individuals. The banks give such credit according to their perception of the short-term benefits these currencies can offer to their borrowers.

There is huge scope for profit when you invest in currency trading. The key to your success lies in identifying the right time to enter the market and exit the market at the right time. This requires your close monitoring on financial markets and knowing about the type of investment that suits you the best. You should always have a plan in place before plunging into the financial markets.

Author

Peter Conley

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