When you become involved in the stock market, the New York Stock Exchange is just the beginning. International trading through the Foreign Exchange Market, or Forex, is a huge conglomerate that allows you to trade across borders and currencies.
What is forex?
The term Forex refers to foreign exchange, more specifically exchanging currencies. Some traders make a play list of forex currency songs to listen to while they are trading. Foreign currency exchange is a very sophisticated market, and those interested in investing in it are advised to undergo comprehensive training before rushing into it.
With proper knowledge, it can be a highly lucrative market. However, without adequate training, new traders are likely to lose a lot of money. Those who are just curious about this market should have a basic understanding before they take the time to train, as they may quickly find out it is not for them.
The process involves buying one currency, typically foreign, while selling another. These currencies are usually exchanged in pairs. Common examples of pairs include the Euro/US Dollar or the US Dollar/Japanese Yen. All exchanges operate through telecommunication or internet networking. There is no centralized exchange.
How does a bull market or bear market affect the Forex as opposed to the NYSE?
During a bull market, the prices of stocks are rising, usually at a very healthy rate. This boosts morale and optimism on the stock market floor, and many anticipate gains and the ability to sell for a profit.
If you flip the coin, a bear market means the loss of value in stocks and is characterized in the beginning by a fall of 15-20% in value of multiple stock indexes. With so many different indexes in the Forex, how can you possibly know what the market risk (risk of day-to-day loss) or market trend is?
One way to make yourself aware of when to place an order is to follow a candlestick chart. This is a modified line graph combined with a bar chart that follows the trend of stocks or indexes throughout a specified period of time.
It allows analysts to measure the equity of an item over time, making it easier to determine the market trend for that particular commodity, as well as the entire market. If the trend is flat, this means that the price is neither rising nor falling, and there is no immediate need to make a move to either buy or sell. Barring an incident or a huge turn in the entire stock market, the price of the commodity is likely to stay steady for a time.
When the price of a stock, bond, or other investment begins to rise, it is time to think about selling your stock. Be aware that, when doing so on Forex, you must take into account the fluctuation of the currency conversion between countries within the trade.
If you have determined that, regardless of this variable, you will profit significantly from the sell, an execution should be scheduled.
Traders have defined a list of major currencies that are exchanged more than others. These include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar, and the Australian Dollar. More than eighty-five percent of Forex trading involves major currency pairs.
Daily turnover of the world’s currencies stems from two sources. Five percent comes from foreign trade, where companies sell and buy products to and from other countries. The sales profit is converted into domestic currency. The other ninety-five percent comes from speculation for profit.
Likewise, when the market takes a downturn and prices drop significantly, it is a good time to invest. Again, it is important to check the value of any foreign currency in which you will be trading on Forex to be certain that it has not gone down significantly, which would cause you to lose money on your purchase.