What are the types of exchange on the Forex market? And how can I profit more knowing that? And what does the basic economy have to do with the complex Forex market?
Having a good understanding of how the exchange rate evolves is a basic aspect of Forex, as this is how investors generate profits. There are many factors that influence the change in currency value, and it’s always a good idea to review why the graphics are moving on your platform.
Everyone has at least a basic understanding of a currency, especially when they leave their country and make purchases in foreign currency, for example. But because Forex uses a derivative financial product to do business on the market, there is an extra level of sophistication, and all currencies must be matched. That is why although we are interested in factors that affect a particular currency, what matters to the trader are the pairs to which that currency belongs.
As a retail Forex trader, you don’t get a lot of bills coming to your home every time you enter a trade. It wouldn’t be practical. What happens is that, to buy a currency, you have to sell another currency at the same time. Also to sell a currency, you have to buy another currency. That’s how pairs are built.
If, for example, you think the Euro will be strengthened, then you will want to buy Euros. But being stronger is relative, because you need to know what will be stronger. It could be against, say, the dollar. This means that you will want to buy pounds by selling dollars, that is, buying EURUSD. Therefore, there are two parts to each transaction: the buying part, and the selling part.
Supply and demand
When you deliver an order to the market, say you want to buy a lot of pounds, your trader will look for people who want to sell pounds for that price. If there is someone who wants to sell a lot, you set up the business, and run. But what if there is no one who wants to sell at that price?
The law of supply and demand applies, which means that if there is not enough supply, the price increases. If the price of the pound goes up, and the price of the dollar remains constant, then the exchange rate has changed. Thousands of brokerages around the world are constantly collecting their clients’ offers, so whenever someone offers to sell or buy, the market moves. The more you sell, the more the market drops; the more you buy, the more the market goes up.
In the end, it’s basic economics
Forex trading is perhaps one of the best examples of the essential principles of the economy. The reasons for choosing to buy and sell are varied. That is why we have a set of fundamental, technical and sentimental analyzes to try to find out what traders plan to do and, therefore, where the market will go. But in the end, currencies vary simply by supply and demand.
Thus, although it is important to follow the fundamental analyzes to find out how the market can have sudden and “non-standard” fluctuations, it is also important to pay attention to the principles of the economy to conduct your negotiations.
If fundamental analyzes say that the Forex market may suffer sudden fluctuations due to the occurrence of certain events in the real economy, generating volatility that often makes it prudent not to make new trades in the period, or on the contrary, to do so, to understand that the Forex market also is governed by the basic rules of the economy can expand its analytical capacity on this market.