The Forex, unlike the
Stock Market, has no
centralized exchange
for forex and all its
transactions are
conducted on the
‘Interbank Market, or
OTC (over the counter)
via phone or electronic
networks .

Fundamentally, there are two main trading sources that comprise the daily
Forex turnover. The Foreign trade represents only five percent and results
from companies buying and selling their products in foreign countries as
well as converting foreign sales into domestic currency.

This group of traders include Governments, companies (exporters and importers)
and some investors who have foreign exchange exposure.Their profits can be
directly affected by the fluctuating movements between their local or domestic
currency and the foreign currency of their overseas business or investment
partners.

The Speculation trade accounts for the other ninety-five percentage and are
transactions made for pure profit. This groups, which includes banks, funds,
corporations and individuals creates artificial rate exposure in order to
profit from the price variations or movements.

So as you can see and which may come as a surprise to you, most Forex trading
is purely speculative, with only a small percentage of the market activity
resulting from governments' and companies' fundamental currency conversion needs.

The Forex is the world’s most traded market and is active 24 hours a day from
Sunday 5pm EST to Friday 5pm EST. During each day, Forex trading commences
in Sydney and then moves around the globe passing through Tokyo, London and
New York.

During this time, investors have the unique opportunity of reacting immediately
to currency fluctuations around the clock. The world's currency markets can be
viewed as a huge melting pot because no other institution embraces the current
world’s events at any given time more than the Forex.

Several factors influence the supply and demand of any given currency and these
fall into the following categories of  economic factors, political conditions
and market psychology.

Economic factors involve policy making and economic conditions. A government’s
fiscal policy can directly influence its central bank’s level of interest rate
which has a major bearing on the supply and cost of its money.

Economic conditions include but are not limited to Government budget deficits or
surpluses; Balance of trade levels and trends; Inflation levels and trends;
Economic growth and health and the  Productivity of an economy. This fundamental
data is released at specific times and dates during the month as defined in the
Global Economic Calendar.Internal, regional, and international political conditions
and events can have a profound effect on currency markets.

For instance, political upheaval and instability can have a negative impact on a
nation's economy.  Also, events in one country may spur positive or negative
interest in a neighboring country affecting its currency.

Market psychology and trader perceptions influence the foreign exchange
market in a variety of ways such as the following:

Unsettling international events can lead to ‘Risk Aversion’ causing investors to
seek Safe haven investments.
 
The ‘Buy the rumor, sell the fact’ truism can apply to many currency situations
and reflects the impact of a particular action before it occurs. When the anticipated
event arrives, the market then reacts in exactly the opposite direction.

Economic numbers themselves can become important to market psychology
and may have an immediate impact on short-term market moves.

As you can begin to see, the Forex has the potential for significant financial
gains but is also a very dynamic and complex entity. In order to understand
this market so that you can trade it successfully, you definitely need to
develop a powerful winning psychology that will enable you to navigate yourself
through its turbulent behavior.

This is why you need the guidelines, explained in this series of hubs, to help you
succeed in accessing the financial rewards stored within the Forex.

Good Luck with your Forex Trading.

If you have any queries, please leave a comment and
I will do my best to answer it.

Regards,

Terry Allen

Please be advised that Foreign Currency trading involves substantial risk of monetary loss.

All information contained on this website is provided as general
commentary and must not be constituted as investment advice.

I will not accept liability for any loss or damage, including
without limitation to, any loss of profit, which may arise directly
or indirectly from use of or reliance on this information.