Saturday, January 4, 2014
While the theory behind forex transactions might be straightforward enough, making them work to a profitable end can be a much more challenging task. Aside from the research and market analysis functions required (which anyone can learn with time and experience), an understanding of how the markets work and how transactions can be made to deliver returns is fundamental to ensuring the success of your trading time.
Currency Values In Forex Trading
Forex markets work by enabling traders to take positions that effectively look to forecast future movements in market price for the currency they are trading. So, a trader who buys Sterling, for example, would do so on the assumption that the value of Sterling will rise over time, such that their initial investment will increase in value. The position increases its worth if the value of the currency rises against the other currency to which it is matched, leaving the trader with a much more valuable investment than they had to begin with. When the trader reverses the position, the difference is realized as a profit on the trade.
Currency values fluctuate because they are tied to supply and demand factors. When demand outstrips supply (i.e. when more parties are buying goods and services in a currency, or when the markets feel a currency is performing well), the price of the currency will rise. Similarly, where demand falls the price falls, on a simple economic analysis. Understanding these basic concepts of currency rises and falls is central to your forex trading success, because it is these demand and supply factors (often influenced by externalities and news events) that will create the price curve on which forex can be traded.
Currency values fluctuate because they are tied to supply and demand factors. When demand outstrips supply (i.e. when more parties are buying goods and services in a currency, or when the markets feel a currency is performing well), the price of the currency will rise. Similarly, where demand falls the price falls, on a simple economic analysis. Understanding these basic concepts of currency rises and falls is central to your forex trading success, because it is these demand and supply factors (often influenced by externalities and news events) that will create the price curve on which forex can be traded.
Going Long / Going Short
Forex markets are not only heavily traded and potentially lucrative – they also happen to be incredibly flexible. Because currencies are traded in pairs and on margin, traders can decide whether to go long or to go short on a currency pair. This means that traders can either back a currency if they think it will perform strongly (known as going long), or sell a currency they don’t think will perform well, only to buy the market back when the value falls (known as going short). This means that traders can profit with equal momentum and significance on both sides of the fence – whether a market rises or falls. Traders can therefore find a profit in forex regardless of how the market is behaving, presenting even more numerous opportunities for finding successful trades.
