The definition of foreign exchange
Forex refers to the OTC market while buying a currency and selling another currency. The currencies utilised in the OTC markets trading units are issued by the national government or central bank. The money value of a unit is used as a measure of the transaction
How does the forex market work
Unlike most financial markets, the forex market is different, within the foreign exchange market, there is no physically specific place to trade. The entire foreign exchange market operates through the use of electronic banking network infrastructure, various financial institutions and the electronic transactions between individuals. Moving accord to the time difference, foreign exchange transactions per day originate from Sydney and then move to Tokyo, London and New York.
Pricing in Forex Market
Foreign exchange markets and prices are mainly affected and influenced by the flow of various trading and investment between various countries. To a certain extent, the exchange price is also affected by various national economies and their economic policies, factors such as interest rate adjustments, inflation, political instability have a direct correlation to Foreign exchange rates (these factors also seriously affect the stock and bond markets).
What makes forex so appealing
Changes in economic climate and policies generally only produce a short-term impact on the exchange, so when these mitigating factors eventually lead on to the stock and bond markets they adversely trend. While the foreign exchange market can provide to investors more choice and opportunities.
Buying, selling, and spreads
The forex market sets the initial price or quote, And the other financial markets make the same as the purchase price included and selling prices. Suppose the dollar / yen trading price (bid / ask) is at a rate 117.33 / 117.36, if you were to believe that the dollar will weaken, you could press at the 117.33 price to sell the currency pair.
Currency quotes are usually composed of four decimal places, for example if the EUR / USD quotes are 1.2400 / 1.2403, the last number is the decimal point. Most currencies are 0.0001 point. For the yen it is 0.01.
For how a trader makes predictions the currency markets, traders are usually divided into two camps. Technical traders will make use of various analytical methods such as charts, trend lines, support / resistance levels, and mathematical models to identify opportunities while attempting to make trading decisions. Another type of trader tends to rely on fundamental analysis and various economic indicators towards the reaction of a specific currencies national economy and will incorporate the analysis of market drivers, such as GDP growth, inflation, interest rates and so on.