There are three types of financial instruments which are normally traded on various stock exchanges around the world. They are
Among all, forex is the most traded financial instrument across the globe. A particular reason behind this is it is the only market which can be traded all 24 hours giving enough opportunities to traders to trade and make money. The daily turnover of forex trading is around 4$ trillion which is three times the combined business of equity markets (Dow Jones & Nasdaq) and fixed income or debt markets in United States. Secondly, studies say that Technical Analysis gives best results in forex trading as compared to equity and commodity trading. The highly traded currencies are US dollars (USD), Euro, Yen, Pound, Swiss Franc
But before you start trading in forex markets, one should have a basic understanding of
“What is Forex Trading” & “How to read a forex quote”
What is Forex Trading
Forex Markets are markets which currencies of various nations are traded. Forex Trading is the art of trading currencies of various countries between each other with a intention to make money. Forex is also called foreign exchange. There is a huge demand of exchanging currencies which make forex markets the most traded and most liquid markets in the world.
How to read Forex Quote
Whenever any transaction happens in trading, there is of course one buyer and one seller and one currency is bought and the other is sold. A currency quote is nothing but a quote at which previous transaction exchanged hands between the buyer and the seller. The combination of these two currencies is known as “Currency pair”. To give you a small example of rate of Euro against US dollars
The first currency quoted in the above example is called the base currency or often called the domestic currency and the second currency is called quote currency which is often known as the foreign currency. It simply means one EURO is equivalent to 1.3456 US dollars or to put it in another language, to buy 1000 EURO, you need to pay 1345 US dollars.
Bid and Ask Price
Every quote or rather every trade has two rates. One is called the bid rate, the other is called the ask rate. Bid rate means at what price you are bidding or at what price are you going to sell and the second price is called the offer price, the price at which the currency is offered to you or the price at which you are going to buy. The difference between the two is called spread
How Global events affects Currency
- Political Events- Elections and political stability in a country have a large impact on a currency. Political events are considered as a change in the strategy of managing monetary and fiscal policy by the new govt which affects the currency markets
- Natural Calamity- A natural calamity like the Japan disaster earthquake and tsunami in 2011 can hit the nation currency badly as a got og govt spending is there on improving the infrastructure and even the economic activities gets reduced after any natural disaster
As we can analyze that the currency or forex market trading is on a risky side and requires knowledge and skills before you trade but because of the high leverage that may be (1:100), high liquidity and being an 24 hour market, it opens up opportunities for advanced traders to make money. But one is advisable to follow various forex trading strategies and use money management skills while trading in forex markets