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Forex Trading for Beginners – Demystifying the Art of Forex Investment

Forex Trading for Beginners – Demystifying the Art of Forex Investment
September 03
18:33 2014

It is really no surprise that the forex market otherwise also known as the FX market is a lucrative market to invest in, if you play your card right you may make big winnings in the most profitable financial market of the world. Very often the forex market is known as the ‘Golden Salmon’ of the financial market as a testament of the amount of earnings that can be made on the same. One can also think of the forex market as a sort of crossroads which enable the inflow of revenue and capital in international financial markets. Forex investment is created when international mergers, acquisitions, purchases and sales are made for example when Toyota reaches out to Bridgestone (USA) to buy radial tires for their cars.

Forex Trading for Beginners – Understanding a Traders market

The single most dominating factor for the forex investment market is the globally prevalent investment and other financial flows. Think of a Chinese pension fund investing in Australian treasury bonds or Japanese insurer buying assets in the British market all are examples of forex investments. The forex market thus remains as predominantly a trader’s market. This market never sleeps and remains open around the clock six days a week and this gives traders an unprecedented opportunity to all traders to react on world news and happenings and their potential impact on the forex market. Millions of dollars’ worth of trade can be executed in seconds with a simple click of a button and this huge trade may just have a 0.01% impact on the overall market prices. We hope this gives you a fair idea of the size and strength of the forex market.

Forex Trading for Beginners – The numbers game

Give a guess to the amount of daily currency trading size in the global forex market and we promise you that you would not even close to the actual number which is about $2.2 trillion per day. To give you a better estimate of the size of this amount let us write it down – $ 2,200,000,000,000!! We bet you are still trying to count the number of zeroes.

To give you further insight into the size and the investment opportunity into the forex market consider this – Not only is the forex market is large enough to undertake 15 times more trading volume then all the world financial trade market combined it also is growing at a rate of 2% per quarter. No wonder everyone wants to invest in the forex market.

Forex Trading for Beginners

Forex Trading for Beginners – Being able to speculate the global currency market

A huge sum of money in the global market exchanges hands based on the financial and commercial transactions in the currency market and still this amount would easily pale in comparison to the amount of funds that exchanges hands based on market speculation. The vast majority of global trade based on the forex market still occurs with speculation being the base of all relevant theories and a big part of market forces as well – Most buyers and traders concentrate on buying and selling for short term profits and such transactions occur on a minute-to-minute basis. It is just mind blowing to even try and think of the amount of world forex transactions taking place while you are reading this article and that is the true power of forex in the global financial market today.

A conservative estimate sets the daily amount of speculative trading in the world market to be at 95% when compared to non-speculative trading. This basically means that investment based forex trading and commercial trading does not account for more than 5% of the trading volume on a global scale. Further about 76% of global forex trading occurs in the designated ‘major currencies’ of today’s world and these currencies belong to the largest and strongest economies of the world.

Forex Trading for Beginners – The Power of Liquidity

If one is to define Liquidity in the simplest of terms then the definition would probably read like – The current valuation of any security or asset based on the market interest in the same (determined by the buying and selling volumes at a given point of time). High levels of liquidity indicates a volatile market where it is feasible to make good margins by selling and buying assets that are currently being valued highly.

The importance of liquidity from a pure trading perspective cannot be undermined as it dictates the frequency with which the prices can rise and fall in any given financial market. This is exactly where the forex market benefits due to its ability to maintain liquidity in the trading market and hence enjoying the benefit of being able to have large volume of transactions with relatively low impact on the overall market valuation.

Forex Trading for Beginners – Financial markets and Different Currencies

Even though the forex market is incredibly powerful in ti’s ability to transact millions of dollars on a given day it still is affected by other financial markets and cannot exist in vacuum. One cannot forget other pertinent markets such as natural gas, oil, gold and the stock market. There is always a debate about the interrelationships between the forex and other world financial markets and although it may be hard to believe sometimes the overlap is actual zero.

Still you need to understand that each type of financial market has its own laws and dynamics when it comes to operating in the global financial domain. The internal dynamics of such markets change based on many factors such as news, data, sentiment and global positioning. This basically ensures that all global markets would interact and overlap with each other at some point of time for sure and at such times you would need to be careful in considering the external factors impacting the global forex market before taking any drastic trading decisions. It is also advisable to watch the growth of economies of various countries closely as they provide invaluable hints to the corresponding impact on the country’s currency and hence would sway the forex market.

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Articles on the Jadenforex blog written by "Jadenforex" include guest posts, and items written in collaboration with several authors.

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