Forex Trading - The Vital Ingredient For Success All Traders Need!

[steffandevin1]

The foreign exchange market was introduced in the early 70s of the last Aro Trade Review  decade when the Bretton Woods Agreement between nations was introduced. Prior to that the value of the foreign currency was based on the stock of gold held by each nation. The Bretton Woods Agreement did away with that and allowed countries to set their foreign exchange rates meaning that one dollar would be worth so much of sterling pound and vice versa on a basis of demand and supply.

When countries trade with each other through their business or from government to government basis they either have a surplus of one currency or a deficit in another. They try and make up the surplus to work for them by putting it on sale to other countries which have a shortage of that currency and where they have a deficit in a particular currency they buy from a country which has a surplus of that currency. Read this carefully. This is the crux of the matter.

Stock markets generally work on the same principle but they have fixed hours of trading. In foreign exchange markets it is taking place all the time throughout the day and night 365 days in a year. Obviously just as in stock market countries take a hit when their currency depreciates or their need for a currency is so high that the other dealing country takes advantage of that high demand in the market and marks up its surplus currency to a higher level. This trade reflects in some measure the stock market. Demand and supply apply equally.

As countries have liberalised their foreign exchange regimes except one or two the market rate of the currency is determined by demand and supply. This is a complex mechanism and is based on various parameters for which specialist economists and analysts are employed. Normally an individual is not allowed to trade in the forex market as in stock markets. But the individual could join an investment banker who is authorised to deal in foreign exchange and that banker inturn passes on the profit or loss to the individual depending upon the positions taken.Stock markets may trade in something like a billion or more dollars per day. In the foreign currency market the amounts involved are four to nearly 9 times more. And the market varies from day to day.

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