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Forex Market Concepts

Forex Market Concepts

It is not necessary for you to become a day trader to attain the benefit of the Forex Market. Whenever you visit the foreign country and exchange your country currency; you are joining in international exchange rates or alternatively Forex. All, other money or investment markets insignificant in contrast to the Forex Market.

It is true that the Forex Market has a big size but it is utilizing simple concepts for the trading of the currencies.

Main Concepts

In the stock market, you need to choose from the many companies stocks, however, in the currency market, you need to determine or observe the undervalued or overvalued by considering the 8 main economies of the world.

Below are the main countries who are the major contributor to the currency market.

  1.    Eurozone
  2.    USA
  3.    UK
  4.    Japan
  5.    Australia
  6.    New Zealand
  7.    Canada
  8.    Switzerland

You can take benefit of these large financial markets by gaining income through liquid and value able instruments.

Many online and offline sources release data on everyday bases about these countries, so, it becomes easy for all investors to make correct decisions by considering the economic health of the country

Yield & Return

As an investor if you want to invest in currencies trade then keep in mind yield derives return. The purchase and sell on the spot happens in the foreign exchange market between two different currencies. All currencies price is determined in the pair form; every currency is valued in relation to other currency. If the currency is priced at EUR/USD: 1.24 then its means 1.24 dollars is needed to buy 1 Euro.

Each foreign exchange desired you to purchase one currency and sell another. An interest is attached to every currency in the world. When you sold a currency then it is obligatory for you to pay the interest rate and if you are purchasing the currency then you receive the interest. Let us compare Australian dollar/Japanese yen. Consider the interest rate on Aus dollar is 0.9 percent and on Japanese yen 0.6 percent. Mostly for calculation of the interest rate basis point 1/100th of 1 percent is uses. So, the Aus Dollar is 900 basis points and the Japanese Yen is 60 basis points. It means you can earn 9 percent on the Australian dollar in contrast to the payment of 0.6 percent on the overall return of 840 basis points (900 minus 60).

Forex Market also facilitate you with leverage capability, with the ratio of 100:1, it means that you can manage 10,000 dollars with the investment of 100 dollars. However, a right decision making creates high profits for you and a wrong decision can lead you with massive losses.

Carry Trades

Carry trade is the name of the strategy came into being by the fluctuation in the different countries’ currencies prices. Carry traders not only takes benefits from the interest rates but also from the appreciation in the prices.

For example: between the year 2003 to 2004 the Aus dollar/ US dollar pair was offering a yield spread of 2.5 percent. Its mean with the leverage of 10:1 one can earn 25 percent return. In the same time, the price of Australian dollar rises from 56 cents to 80 cents against the U.S dollar, which indicates a 42 percent increase in the price. It is showing that if you have made this investment then you can earn positive yield with the high capital gains.

Know How About Interest Rates

The economic condition of any country is a good indicator of the interest rates: the countries with the good economic condition tend to raise the interest rate to control to regulate growth and inflation. On the other hand, the countries with weak economies try to reduce the interest rates; normally this happens during the recession period. So, for good decision making in Forex trading all investors should have good eyes on the country economic condition.

Conclusion

Nowadays everybody has access to the forex trading online. You can study different strategies available online. Many news websites are available to guide you about the economy of different countries. You can get good returns to form the forex market if you are well aware of the interest rates and economic concepts. The stock market is big in size but not than forex.

About Muhammad Nasir Aziz

Muhammad Nasir Aziz is Financial Journalist and writing articles on finance from last 4 years. A reader by a night and a writer in a day. When he is not doing writing then he like to play Cricket and Football. He is always trying to learn new things. Have a deep passion for writing on finance and his whole life loved it. Have worked for Stocks Reporter and currently working at Value Spectrum as a Financial Journalist.

Comment ( 1 )

  1. Despite this market’s overwhelming size, when it comes to trading currencies, the concepts are simple. Let’s take a look at e some of the basic concepts that all forex investors need to understand.

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