Forex trading is an interesting interaction between two players in the market, and a person who can speculate better wins the deal. If in the other form of interaction and trading it is necessary for the players to have minimum education, in foreign exchange trading as long as the person knows how to hedge, speculate and read the market movements and the changes in the rates of the paired currencies then he can be a successful player in the foreign exchange market.
In the most basic transaction set-up, a player can profit in the US Dollar and Japanese Yen currencies if he can buy one currency at a low price and sell it at a higher price. This kind of trading is formally done in foreign exchange market, and the market operates non-stop, 24/7. The traders that are involved in forex trading perform hundreds and thousands of trades each day as these traders continue to buy and sell currencies and at the same time exchanging market information.
Players who are into this form of trading are well-informed and guided with the current market and economic news. Political and economic news have a say in the fluctuations of the rates of these currencies, and even just a slight movement in the rates can spell the difference between profit and debt. To put the size of the market in proper perspective, it has been estimated that around $1.2 trillion is being traded every day for a number of purposes. Persons who are into forex trading are driven by varying motivations though it can be said that the most common denominator is the pursuit for profits.
There are four specific reasons why people trade currencies:
1: Traders buy or even sell currencies in order to support their import and export businesses. If one business from country A needs to buy raw materials from country B, then it is often a requirement for country A to buy the materials of country B using the currencies of country B.
2: Foreign exchange trading is performed as part of direct foreign investment
3: In many cases, traders are into this market so to profit from the short-term fluctuations of the exchange rates. There will be times when rates for one currency may go down, and speculators can take advantage of this by buying the currencies at their low level and selling these currencies the moment the rates stabilizes and improves.
4: And for many governments and institutions, foreign exchange trading can be used as a way to buy foreign financial instruments.
Traders involved in forex trading should know that the market is volatile, and currency rates move at a fast rate. This is the challenge for those who are active in this market. Another challenge for participants is to effectively predict the participants in the market and when they can correctly anticipate the strategies of the other players then they can act first and be at the winning end of the deal. Understanding the complex world of forex trading is really hard for the first timer. But there is one simple rule that should not be forgotten on how to make money in this market- buy currency at a lower price and sell it at a higher price. Or a trader can anticipate when the market is on a slump; capitalize by selling and buying it back at a lower price.
