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A Knowhow Of Foreign Exchange



This article is published in collaboration with Scutify, where you can find real-time markets and stock commentary from Robert Marcin, Cody Willard and others. Download the Scutify iOS App, the Scutify Android App or visit

Foreign exchange is a immense huge market where there is an interchange of currencies. There is a lot of money involved and lot of people are into trading of forex as it is has been a profitable business proposition. The exchange can be done for a lot reasons such as tourism and commerce where in most of the forex business lies. On a daily basis trillions of dollars are transacted in the world.

Since the values of individual currencies vary, there is a transaction possible this is done by commercial and investment banks. Now individual players can trade in forex through the use of internet. The need for foreign exchange services has increased and over time and more and more individual players are making their foray into the jak na Forex market.

The ways in which forex is being used

  • Forex is being used as a hedge as currencies all over the world fluctuate in value yet they still have to avail goods and services from another country or sell it to them hence forex becomes a vital part of any economic trade. When there are changes in the value of the currency the trader is at risk so he/she may fix the rate at forward so that he/she may not incur a loss. This way of locking the rate to mitigate the risk is also known as shaping markets also.

  • There is also a futures market which works a little differently than a forwards market. Here the currency can itself be hedged in a centralised way. This market is not as liquid as the forwards market but as is as efficient to protect the currency against sudden fluctuations.

  • Since there is constant turmoil of currencies going up and down there is scope of speculation and this is also means for trade and earning and sure enough profitable too. There is bound to be variation in the supply and demand due to many factors such natural calamities, political challenges, policies, trade flows, geopolitical risks etc. there will be speculation as to which currency may strengthen over another or the weaken due to a particular situation or event.

  • Currency trading can be viewed as an asset as there is earning in interest rate differentials between the currencies also value can be gained through the exchange rate.

How it became possible for all of us to dabble in forex trading

In beginning forex was only dealt by the government, investment banks, multinational corporations, hedge funds and individuals with a high net worth. There were no fringe players in this market. With internet explosion retail forex trading began its journey of individual players of smaller capital worth could put in small amounts but trade big and earn profits along the way. With the help of banks and brokers forming the secondary market these individual players started getting their foothold right in the forex market.

With many banks working in tandem which gives it a centralised approach. The banks themselves have internal processing to check down the risks and make it more calculated and avoid big shocks in terms of losses. The remaining market may be unregulated for individual players but a single errant player cannot cause major upheaval in the market as there is trillions of dollars that are trade on a single day. So no one individual can control the demand and supply chain. Even a a single centralised can't be game changer for a long time unless there is a participation for all other banks to do so which will not a happen.

The banks trading in forex have to face sovereign risk and credit risk which they try to control as much as possible through internal auditing processes. There are bids and offers for particular currencies and obviously the pricing would depend on the demand and supply. To make the pricing more transparent and individual players don't get duped, a new system is being put into place known as the electronic communication network where in the buyers and sellers can get the get competitive pricing and centralised liquidity.

The above system is for the retail trader and protecting his interests unlike the banks who have a mechanism in place or the brokers who can sell among his own customers and make up for any discrepancy in the trade. But retail traders will not be aware and they would have entered the market of making it big overnight because of the huge money vest in forex trade.

The risks and benefits involved in forex trading

  • There is most liquidity in forex trading than in any other market.

  • There are eight major currencies to trade with so there is not going to be so much confusion unlike stock trading.

  • The entry and exit positions can be done in a fraction of a second.

  • There is a large leverage offered unlike other market trading.

  • Leveraging should be be done cautiously as it involves risks.

  • A very little money can be used with a leverage of 100:1 options.

  • If leverage is not used judiciously there are chances of total wipe out.

  • Unlike stock exchanges you don't have to wait for the opening and closing bells, forex can be traded the whole day.

  • Since jak na Forex is a macroeconomic endeavour it does not need to dig into the nifty gritty of the companies such as the board members,

It can be finally said that beginners and individuals with smaller capital can trade by day trading or swing trading which will be lesser riskier and will help you get the grasp of the market and help you to learn the nuances as you go along. The person's who are involved in the forex trade for a longer period of time and have gained experience on the functioning of the system works can go for the carry trade which is also beneficial for long term benefits too. Grab all the knowhow before getting into forex trade.

This article was written by Adam Monson for on .

This article published in collaboration with Scutify, the best app for traders and investors. Download the Scutify iOS App, the Scutify Android App or visit

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