Monthly Archives: March 2012

Forex Exchange Rates

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Forex is an acronym for Foreign Exchange, which involves exchanging currencies of various countries of the world either for business needs or for profit making due to the fluctuation in their values. So the rate at which one can buy or sell a currency is called exchange rate for that currency which shows its value as compared to currency being used in its exchange. This exchange rate represents the amount of currency you want to buy or sell in exchange of amount of currency you are having at the moment. For example, you want to buy Egyptian Pounds by paying in USD then you will see its exchange rate which is around 1:5.5, which means that you will get 5 and half Egyptian Pounds for 1 US dollar.

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Forex exchange rate doesn’t stay the same. It experiences continuous fluctuations depending upon various factors important in determining the value of certain currency. On the basis of these fluctuation and stability in forex exchange rate, it can be divided into a couple of categories: fixed and floating exchange rate.

 Fixed Forex Exchange Rate (Pegged)

As the term indicates, this type of forex exchange rate stays the same for longer time period and also called pegged exchange rate. Its value is set by central bank of government which is considered responsible for stabilizing demand and supply of its currency. The exchange rate is calculated in relation to USD mostly.

The purpose for keeping the exchange rate fixed, is to maintain a balance between supply and demand of a currency. Central bank sells or buys its own currency for this purpose. As it holds high foreign reserves, therefore it is convenient to absorb extra currency from forex market or supply required amount in order to keep the business running smoothly. This rate stays unaffected by ever-changing exchange rate of forex market.

Floating Exchange Rate (Self-Correcting)

Floating or fluctuating exchange rate changes many times during the day depending upon its demand and supply in forex market. These fluctuations make traders come to invest in forex business so that they can generate profit by buying currencies at lower rate and selling at higher rate. Private market not central bank is considered responsible for setting floating exchange rate.

This kind of exchange rate is also called self-correcting as it has ability to correct itself according to the changing scenario in the market. Suppose if demand for a certain currency decreases in forex market, it influences the value of imports and increases their overall cost. In such situation, the demand for local products increases to compensate the inability to invest into expensive imports. This leads towards creating employment opportunities. So the whole setup adjusts with the change in the demand or supply of currency.

 

So if you are intending to invest in forex business then you need to keep a vigilant eye over floating exchange rate which will determine the potential of profit you can generate by investing certain amount into the money making venture of forex trading.

Forex Trading Strategies

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Forex trading is a huge money making venture involving exchanging currencies over the counter with no centralized exchange. Investors from all over the world enter everyday in this mega profit generating market with an expectation to generate profit by investing whatever they can. Small individual investors to large enterprises all participate in this vast money making game irrespective of their geographical position. They just need to have access to internet as the whole business of forex trading is carried out through the network of computers for connecting traders all over the world. Before you also feel excited to dive into this vast profit making pool to earn colossal profit for small investment you need to understand forex trading strategies in order to play at safer end.

Leverage

Leverage is the most important strategy in trading forex. It involves borrowing money from broker to invest into certain trade in forex. This strategy is used to make profit out of momentary fluctuations in currencies values. As this amount is provided by broker so investor first opens a margin account with him after that he can get amount of leverage by the ratio of 50:1 100:1, 200:1 or even more. Mostly standard trading is carried out on 100,000 units so in order to trade $100,000 an investor has to deposit only $1000 in his account. After that he will get be able to trade $100,000 by having leverage of 100:1. This ratio seems really larger than 2:1 ratio offered in case of equities but the reason is that currency fluctuation during intraday remains less than 1% unlike equities. So Forex brokers are able to offer such huge leverage to invest in.

Though leverage can maximize the profit potential up to 100 times or even more, but it also carry equal chances of causing unexpected upsets if currency values fluctuate to an extent an investor is not expecting. That is why other strategies of limit entry, stop entry or stop loss are used to avoid intolerable losses.

Limit Entry Order

This strategy is used to enter the market for placing trade at most desired price or level. Limit entry orders are placed at specified price or even better. In this strategy, a trader either buys a currency below the market or sells it above the market. This type of strategy is applied in an anticipation of reversal in price hike after reaching your desired level.

Stop-Entry Order

This strategy works in reverse of limit entry order where an order is placed to sell below the market or buy above the market at reaching certain price.

Stop Loss Order

As the name indicates, this strategy is used to stop further loss after reaching at certain level. If prevents further loss if prices fluctuate against your predictions or expectations. It works until canceled by the trader itself.

Stop loss order strategy is considered really useful particularly for those who can’t sit before computer to observe each and every fluctuation in currency prices.

Market Order

Market order involves buying or selling a currency pair at best possible current price. As the best price becomes available the investor places order via broker to buy or sell. Depending upon the current available price, investors decided to sell or buy certain currency pair.

So, after having a look at aforementioned forex trading strategies, if you think that you are also having potential to convert your investment into profit then go and have your share today by using these strategies timely and prudently.

What is Forex Trading?

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Forex Stands for FOReign EXchange, which deals in exchanging foreign currencies not by the way of centralized exchanging platform but conducted over-the-counter (OTC) electronically. It involves currency trading from different countries of the world. According to an analysis, almost $3 trillion or even more are traded everyday in foreign exchange markets which reveal the vastness of this trading venture. Everything is done via computers between traders sitting in different corners of the world. Major financial exchanges of developed countries (located in London, NY, Tokyo, Hong Kong, Singapore etc.) control this mega trading game during their specific trading hours.

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Forex exchange is 24 hours market with huge trading volume of $3 trillion plus every day. The reason is need for exchanging currencies for certain reasons or for enjoying profit generated after value of your currency increases in the market. That is why only 5% trade is done by companies/individuals for getting buying another currency for business needs while 95% trading is done just for making money due to the fluctuating value of various currencies possible throughout the day. Forex market carries highest liquidity due to its immense potential of generating profits within few minutes. Even stock market with around $2 trillion turnover everyday seems dwarf due to the huge volume of FX market.

Top Currency Pairs in Forex

Currencies are traded in pair in forex. The most traded currencies are called majors which are given below:

*US Dollar (USD)
* Japanese Yen (JPY)
* Euro (EUR)
* British Pound (GBP)
* Canadian Dollar (CAD)
* Australian Dollar (AUD)
* Swiss Franc (CHF)

For representing a currency pair, their abbreviations are used. Top currency pairs which are traded mostly throughout the world are given below in their abbreviated forms.

1. Euro and US Dollar (EUR/USD)

2. US Dollar and the Japanese Yen (USD/JPY) (The Gopher)

3. British Pound and US Dollar (GBP/USD) (The Cable)

4. USD/CAD

5. US Dollar and Swiss franc (USD/CHF) (The Swissie)

6. AUD/USD (The Aussie)

Forex trading is usually done by hiring a broker who places trade according to your preferences. Placing trades with the help of broker does not take more than few minutes. You just make preference and broker passes it to Interbank Market to create your position. As you close trades, your broker also closes your position in the market and credits the forex account with gain or loss of amount traded on that specific day.

Traders or investors interested in exchanging foreign currencies from all corners the world respond to fluctuations in major currencies and buy or sell currencies in an anticipation of generating instant profit for their investment. An investor prefers to buy a currency at lower rate and sells it with an increase in its value in market. In this way forex exchange becomes the most lucrative, huge money making market with immense potential of earning profit within a game of few clicks on approaching the desired value of certain currency.