Foreign exchange or commonly abbreviated as forex is a foreign currency buying and selling transaction. Globally, the volume of forex transactions (forex trading) is even greater than stock trading. So, what is forex trading and how it works?
What is Forex?
Citing data from Bank for International Settlement (BIS) which support by Federal Reserve Banks of the United States (US). In 2016 the volume of transactions per day in the forex trading market reached $5.1 trillion.
As a comparison, the volume of transactions on the world’s largest stock exchange, the New York Exchange, is stuck. It stucks at the level of 22.4 billion per day.
This means that even if transactions on exchanges around the world are combined, their value does not necessarily exceed transactions in forex trading.
Forex Trading Runs Non-Stop 24 Hours
Forex trading also runs non-stop for 24 hours. This differs from stock trading which only applies during working hours. It’s according to the regulations of the stock exchange authorities in each country.
What is traded in forex is foreign currency or foreign currency (forex). That is, forex trading is an activity that trades foreign currencies.
Trading in foreign currency occurs because of the need for foreign currency such as debt payments, exports and imports, foreign travel, and so on.
Because the transactions are very large, forex trading can also bring in large amounts of money and in a relatively fast time.
Doing Forex Trading
What you need to remember, forex trading is done alone without the need to be represented by a broker. The brokerage only provides a transaction system.
Currently, forex transactions are carried out online non-stop, either using applications or other online platforms.
Some of the forex favorites in forex trading are the most influential currencies in the world such as the US dollar, Japanese yen, Chinese yuan, euro, and pound sterling.
How Forex Trading Works
There are still many people who think that forex trading is a game to gambling activity.
This is natural, considering that forex trading is so volatile that many call it an activity of making a profit by relying on luck.
However, forex trading also requires various calculations and analyzes, as well as accuracy in predicting foreign exchange price fluctuations.
In forex trading, there is no official reference for determining the value of the currency, it all depends on the strength of supply and demand.
Indeed, in some cases, several parties can influence forex movements. However, to move the market, you need very large funds.
Foreign Exchange Price Driving Factors
Several things that influence foreign exchange prices include interest rates, oil prices, geopolitical and economic conditions, and so on.
As an illustration, when the Federal Reserve Banks or the Central Bank of the United States wants to attract the dollar circulating in the world back to their country, they will raise the benchmark interest rate.
In this condition, the demand for US dollars will increase significantly. The dollar value will strengthen in front of other currencies.
For forex trading players who hold US dollar deposits, of course, they will benefit when selling them at a higher price. Those are some things about forex that you need to know.
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