Guide To Forex Trading.

When one talks about exchange rate, this simply refers to how much a certain currency is worth in relation to another currency. For example, you are planning to go on vacation to Singapore and you live in the United States. You need to have your US dollars exchanged to Singaporean dollars so that you have money to spend during your journey. Thus, you need to determine the exchange rate in order to determine that what you have will be enough to sustain your trip to that country.

You should keep in mind, though that every day, the currency equivalent may change depending on the demand. This is due to the fact that the different currencies in circulation are being traded in the Foreign Exchange Market (Forex). This Market functions the same way as the stock trading markets, except that in this case, currencies and not stocks are being sold and bought by the traders. As an international market, the Forex operates round the clock, from Sunday afternoon up to Friday afternoon, 24 hours a day.

Foreign exchange(Forex) trading can be quite lucrative, if you know how to play the game. Even if you do not have sufficient capital to make huge transactions but are a risk taker, you might want to try marginal trading, which refers to trading utilizing borrowed resources. Marginal trading is when you are able to buy a certain currency at a lower exchange rate and when the rate increases, you cash in and sell what you have previously bought. It can be quite risky though since there is the probability that the exchange rate will go lower than your buying level. However, if you have the knack for feeling the market and the movements of currencies, you can capitalize on this ability to make money for yourself.

For a better understanding of the foreign exchange(Forex) trading, you might want to resort to fundamental as well as technical analysis of the market, which most investors generally utilize as tools in making their investments. Fundamental analysis refers to the study of the currency in relation to its country of origin. The political and economic situations of the country are taken into consideration as a way of evaluating the future performance of the currency in question. Factors such as the prevailing banking interest rates, inflation rates, employment as well as unemployment levels, purchasing power and other pertinent data are being studied by fundamental analysts as to predict if the currency will perform stronger or weaker in the near, medium and long-term.

Technical analysis is the study of the performance of the currency based on the opening, highest, lowest and closing prices of a certain currency together with the volume of transactions on a daily basis. The application of this technique is deemed useful as analyst and investors believe that there are patterns or trends in each and every movement of a currency. Hence, it is possible to predict to a specific degree that the currency will move up or down the next day or the following week or months.

Generally, most players in the foreign exchange(Forex) market would normally look at types of analysis for a better leverage in their investments while others may favor one over the other. Whatever analysis you choose is really up to you.

Article Source: Forex Trading Guide
By: Michael Russell