If you have decided on investing on the foreign exchange market or forex, you need to know the what, why, and how of this business. Understanding the foreign exchange market is not as difficult as other people seem to make it to be. For instance, if you have traveled to another country and have exchanged currencies, you have already taken part in the great world of forex trading. Exchanging currencies was not so difficult, was it?
Forex or currency trading is the buying and selling of any foreign currency to another currency. One thing that every forex investor needs to understand is that even though there are hundreds of different currencies in the world, he or she is only required to watch over the major economy players to be able to make the best decisions in trading currencies. This is because these major players have the biggest financial markets in the world as well as the most advanced. Therefore, when an investor focuses on these major economies, he can earn interest income on the largest financial market in the world. The major players (in no particular order) investor needs to watch carefully are:
- Japan
- Switzerland
- New Zealand
- Canada
- European Zone especially France, Spain, Germany, and Italy
- North America
- Australia
- United Kingdom
When trading in the spot market of the forex, an investor buys and sells two different currencies. Traded currencies are always in pairs. For instance, if a quote is .9700 to the pair USD/CAD, this means that it costs 97 cents to buy $1 US dollar. Forex deals always involves the simultaneous buying one currency and selling of another. The money from the sold currency is used to purchase the new currency. Moreover, because of the set interest determined by the central bank of a currency’s country, an investor is obliged to pay the interest rate of the sold currency. However, an investor also has the right to earn interest on the purchased currency.
To help keep investors up to date on the foreign exchange markets, forex market news releases updated information from these markets regularly. These updates consist mostly of currency trends, exchange rates, as well as assessments on the health of the economy in different countries.