The conversion of one currency into another is known as forex Trading, often known as foreign exchange or FX trading. With an average daily trading volume of $5 trillion, it is one of the most active markets in the world. Foreign exchange, or forex, can be defined as a network of sellers and buyers who swap currencies at a pre-determined price. It is the process by which people, businesses, and central banks convert one currency into another; if you have ever travelled abroad, you have almost certainly done so.
While some foreign exchange is done for practical reasons, the great majority of currency conversions are done in order to make a profit. Because of the large volume of cash that is converted every day, some currencies’ price changes can be quite erratic. This volatility is what makes forex so appealing to traders: it increases the chances of making large returns while also increasing the risk of losing money.
Forex trading, unlike stock or commodity trading, takes place directly between two parties in an over-the-counter (OTC) market. The currency market is controlled by a global network of banks based in London, New York, Sydney, and Tokyo, which are all located in separate time zones. You can trade forex 24 hours a day because there is no central place.
Factors that move forex market:
The forex market is made up of currencies from all around the world, making it difficult to predict exchange rates due to the numerous factors that might influence price changes. However, forex, like most financial markets, is primarily driven by supply and demand dynamics, and it is critical to understand the factors that influence price movements. Some of the major factors are :
- Central Bank: Central banks have control over supply and can announce policies that have a substantial impact on the price of their currency. Quantitative easing, for example, entails infusing more money into an economy, which might lower the value of its currency.
- Market Sentiments: Market sentiment, which is typically influenced by news, can also have a significant impact on currency pricing. If traders believe a currency is heading in a specific way, they will trade in that direction and may persuade others to do the same, raising or lowering demand.
- News: Commercial banks and other investors like to put their money into economies with a bright future. As a result, if positive news about a particular location reaches the markets, it will promote investment and raise demand for that region’s currency.
- Credit Rating: The credit rating of a country is an independent assessment of its ability to repay its debts. A country with a high credit rating is considered to be a safer investment destination than one with a poor credit rating. When credit ratings are upgraded and reduced, this is typically brought to light. A country’s currency may appreciate in value if its credit rating is increased, and vice versa.
- Economy: Economic data is crucial to currency price movements for two reasons: it provides insight into how an economy is operating and it predicts what the central bank will do next.
Forex is a huge market with unlimited potential . But before you jump in to it you should have full knowledge about it and keep these factors in mind before buying or selling any currency. You can also join professional courses to gain knowledge about forex trading. Below is a link to such course, Do check out the link