The workings or functionality of the Foreign Exchange market might seem to be complicated, and beginners won’t be able to relate to the same. Due to the kind of changes that take place in the market, it is essential to acknowledge all such factors before going ahead to make sense of the market. By doing so, your mind will come up with a bunch of questions that require the right set of answers. So to help you out, here’s a brief take on how Foreign Exchange works.
The Forex market or the Foreign Exchange market is the global arena for trading currencies, and it carries on its process through decentralized means and methods. Unlike the stock market, the Forex market does not have a single point of exchange and moves ahead with over-the-counter markets. The many players of the Forex market drive things forward, and their actions tend to reflect and bring in suitable changes. Due to that, the Forex market is the world’s biggest financial market and trading of over $5 trillion takes place.
The presence of changing exchange rates has always been beneficial for Forex traders since they buy and sell currency on a similar basis. Traders tend to buy a currency which they believe will be successful and if they are right, they will sell it once it’s worth more. As a result, traders predict economic events and try to understand the kind of impact that it bears on the market.
Basis of Operations
The Forex market operates 24 hours a day and through 5 days of the week. This unique phenomenon goes ahead to be successful due to the many time zones present in the world. Unlike the stock market, Forex is not time-bound and remains open throughout the week, except for weekends.
Making a good trading session is directly involved in the process of knowing how a currency rate rises and falls. Since they are priced in the same way as goods, they work based on demand and supply; although the process is simple, one should not get carried away with the same, thanks to the involvement of economic events and certain other factors.
Due to the implication of these events, currencies either become more or less attractive. Based on the same, investors either want to buy currencies or load it on to someone. Apart from that, factors such as inflation, interest rates and political stability also make their presence heard. As these economic factors enter the surface, currency rates will be affected to a large extent and traders will have to make their way around it. So any decision involving a plan for investment needs to be considered only after looking at the entire picture.