Foreign Exchange trading or Forex as it is commonly known, is a complicated process. Among other things, the foreign exchange trader has to take into account, the fundamental factors of a country’s economy. As these traders mostly work on low margins as compared to other products, they usually have a set of Forex trading strategies that help them stay ahead of the market. What are the strategies that these traders have to adopt?
It has been mentioned earlier that Forex traders have to take into account the fundamental factors of a country’s economy. These factors include but are not limited to the qualitative factors that may have a bearing on the economy of the country. The political positions of the country and the economic stability, any changes effected by the central bank of the country, all play a role in the trading. The trader on his part needs to be aware of not just these factors but also be able to make a guess about how it will react to these factors. Ignoring any of the basics mentioned above can be disastrous to the traders.
The Forex market has seen a number of changes ever since participation was opened in the 1970s. Earlier it was limited to banks, which has since then changed. One can now see institutions and private players engaging themselves in the trade. It is believed that approximately 3 trillion dollars are traded every day, making this one of the most liquid markets ever. Forex trading is different when compared to stock trading. A notable difference is that currencies are often paired, which means that when one is brought the other is sold. The markets operate 24 hours a day six days a week.
There are four factors that a trader has to consider when devising a strategy for Forex trading. They will have to consider the country’s GDP, employment rate, the most recent budget and the trade balance. One can easily access all of this information over the internet, but finally it is up to the trader to understand the information and devise a strategy that works best for their own good. The information derived will help the trader to determine or even predict the way a country’s interest rate mat change. Based on these predictions they may decide to either sell or buy the currencies at the appropriate time.
In short, it is up to the trader to understand the market after making an analysis to know when to invest or exit form a particular market.