What is Forex and why is it important to keep an eye on the Forex market? How does forex trading work?
The foreign exchange market is the place where domestic and foreign currencies are traded, sold and exchanged.
Central banks intervene in the foreign exchange market to regulate exchange rate fluctuations or to actively influence exchange rates.
Most often, there are several causes for the emergence of inflation
The most traded and stable currencies and currency pairs are the US dollar, the euro, the Japanese yen and the British pound.
Foreign exchange refers to a cashless balance of foreign currency that can be bought, sold or exchanged on the foreign exchange market. Trading of takes place on decentralized, so-called over-the-counter (OTC) market. Participants in the market are primarily banks (private, commercial or central banks). For this reason, it is also called interbank trading. Over a longer period of time, there are so-called Forex brokers, on which private individuals can also trade on the Forex market, they also have to pay tax on their profit.
The place of foreign exchange trading is divided into spot and forward market according to the time of settlement of concluded transactions.
On the cash market, various investors trade primarily in foreign exchange and securities (shares, bonds). Contracts concluded must be honored within two trading days.
On the derivatives market, settlement obligations are negotiated that extend beyond two trading days. The asset classes traded are primarily derivatives, i.e. futures, options, etc., which are traded on the futures market.
Foreign exchange swaps are a combination of a forward transaction and a spot transaction. Specifically, forward foreign exchange sales are exchanged with spot foreign exchange purchases, or vice versa. At the same time, the exchange of two currencies is agreed on the day of the transaction. The reverse exchange is then agreed at a later date.
A currency option is an agreement that grants the option buyer the right to purchase or deliver a currency at a specified rate and at a specified time or within a specified period. The buyer pays the seller a price (option premium) for this right. In return, the seller of the option assumes the obligation to deliver or receive the currency.
In the case of exchange rates, the value of a domestic currency is shown in that of a foreign currency, whereby the value is created by the relationship between supply and demand, which the foreign exchange market then reflects. Important: The prime rate determines the supply of a currency. The key interest rate determined by central banks (e.g. the FED, ECB ...) indicates the amount of domestic money available and increases or decreases the value of a currency. The less money in circulation, the higher the value on the foreign exchange market; the more money in circulation, the greater the loss of the currency.
Three quarters of the total trading volume on the foreign exchange market is determined by the following five currencies:
Which key figures should you know? How do you use them in stock analysis?
