Foreign Exchange (or FOREX) forms the major platform, where the currencies of different nations are exchanged for one another. Forex forms one of the world’s largest markets. The currencies are exchanged to encash the profits from the increase in the prices of one currency over another. Generally there is no fixed rate for the exchange for the world currencies, as they keep on fluctuating as the trading is done in the currency pairs such as Dollar/Yen, Euro/Dollar, and others.
Currency trading or the forex trading is always carried on in currency pairs. The rate of the currency is also often referred to as the “Forex rate” or even “rate”. But, in order to evaluate that if any investor makes some profitable investment, his investment option needs to be evaluated and compared against the alternative investments. Also, it is a common practice to compare the return on investment (ROI) is compared with the return on a “risk-free” investment. One example of a risk-free investment is long-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S. government going bankrupt or being unable or unwilling to pay its debt obligation.
When you opt for the trading, you must trade for the currencies only when you expect the currency that you plan to buy will increase in value, as compared to the currency you are swelling. If the situation is that the currency you are buying does increase in value, you must sell back the other currency in order to lock in a profit. There can be an open trade position or situation too, when a trader has bought and sold some particular currency pair and has not sold that pair, to earn the amount that I equivalent or near to the amount spent.
The trading of the major currencies takes 85% of the daily trades. Many of the traders, who carry on with the trading just look forward to simply exchange some foreign currency for their own. But, a major part of the forex comprises of the people who simply speculate the movements of the exchange rates. The currency or the forex traders try to encash even the small benefits from the exchange rate fluctuations. The monetary flows along with the forecast about the macroeconomic conditions of the world result in the actual flow of money.
The forex trading works in three shifts; hence it is a 24 hours activity in the forex market. Two sources are primarily responsible for the daily turnover in the trading. The foreign trade is one of them and is accountable for 5% transaction. This forex trading is due to the fact that the foreign companies buy and sell the products in the foreign markets and the currency conversion helps them to earn profits. The second and the major source of turnover in the forex trading is the speculation part.
Usually, in forex trading, the traders are more focused on those currency pairs that are most liquid, such as Japanese Yen, Euro, British Pound, US Dollar, Canadian Dollar, Swiss Franc, and Australian Dollar. The fact is that approximately 85% of the daily trading is in these major pairs of currency.
The major attraction of this trading, for the private investors, is that the volatility of the forex markets helps them earn significant profits. They utilize various standard equipments for regulating the exposure to risk. They can also easily book profits based on the rising and the falling markets. The trading offers them with various significant options for zero commission trading.