What is the Foreign Currency Market
The currency market is the market in which traders are able to buy and sell currencies. This market is not centralized like the stock or futures markets, and is comprised of 4,500 world banks, companies, retail Forex brokers, and individual investors in the private sector. The currency market is the largest financial market in the world, processing trillions of dollars in volume each day. Analysts point out that this market moves quickly, so traders should be well aware of this nature and to proceed with caution in order to become a successful, self-directed trader.
When discussing currency exchange rates, one must understand that it all starts with the price of one country’s currency opposed to another country’s currency. In other words, the exchange rate at which one currency can be exchanged for another. To shed some light on this potentially confusing subject, we can compare two popular currencies – the European Union’s euro (€) and the United States dollar ($). In 2006, the exchange rate of one U.S. dollar for one euro was about 0.84, which in turn, means that each dollar at that time was equal in value to 0.84 euros. The difference in the exchange rate between one euro in terms of one U.S. dollar is determined by a number of factors, a few of which are touched upon in this article.
Analyzing Currency Pairs
A trader who is well-versed in foreign exchange – (also called Forex or FX) – can analyze currency pairs and place their currency trades on a bid chart for a currency’s value by looking at fundamental announcements (also called currency news). Fundamental announcements cover a variety of topics, such as interest rates, political issues, and the overall state of the economies of different countries and the world. These and other apparently unrelated issues may influence the state of a given economy, which can give the savvy trader vital information to gain an advantage when trading currencies. Simple issues – changes in politics or leadership that the average voter reads about daily – have the potential of significantly impacting the Forex market.
A number of tools are available when checking global exchange rates. Converters and currency tracking tools, including the Reuters currency converter, are heavily used. Most of these tools, although available to the public, are more suited for the experienced currency trader.