The foreign exchange (“FOREX” or “FX”) market is the largest financial market in the world. Compared with the New York Stock Exchange (with a daily trading volume of $100 billion), the FOREX market has a much greater daily trading volume, up to $4 trillion, making it the world's most important financial market, providing ample opportunities for investors who participate in FOREX trading.
In general, FOREX trading does not entail commissions or fixed unit quantity, and trading costs are relatively low. It is only concerned with spread. The FOREX market is opened around the clock, so investors can trade at their preferred time. Unlike investors in mid-cap and small-cap stock markets, no individual investor in FOREX is able to dominate the FOREX market. In addition, FOREX trading is usually leveraged. Investors can control a very large amount of total contract value with a small margin. Leverage gives investors the ability to make high profits (but at the same time the losses are amplified). High liquidity, low barriers to entry, and the ubiquity of a variety of free tools on the market are also benefits of FOREX trading.
Please note: Margin FX and CFD trading carries a high level of risk and is not suitable for all investors. Please read the Risk Disclosure Statement carefully before choosing to start trading.
There are many factors affecting the medium and long-term trend of the FOREX market, including interest rates, gross domestic product (GDP), US non-farm payrolls (NFP), consumer price index (CPI), producer price index (PPI), durable goods orders, claims for unemployment benefits, industrial production index, trade balance, unemployment rate, retail sales, etc. Differences between published data and expectations will have different impacts on currency pairs.
The NFP of the US is one of the important factors affecting FOREX. Increases in NFP and average wages indicate that employment growth and potential inflationary pressure have increased. In many cases, the Fed will inhibit them by hiking interest rates, benefiting the US dollar. On the other hand, NFP's continual decline would mean that the economy is slowing down to some extent, leading to an increase in likelihood of reduced interest rates and hurting the US dollar.
In addition, decisions of central banks' in different countries on interest rates are another important factor that affects FOREX. In the US, for example, interest rates are determined by the Federal Open Market Committee (FOMC). Interest rate decisions are important because central banks in different countries will formulate monetary policy and interest rate decisions based on a combination of economic growth, domestic inflation and unemployment. Therefore, interest rate decisions determines a country's path of interest rates for a period of time in the future.
If the central bank in a country decides to lower interest rates, future returns on cash deposits will fall, causing local currency funds to flow from banks to the market, encouraging investment and consumption, and boosting economic growth. At the same time, the market demand for the country's currency will drop due to lower yields, increasing the currency's depreciation pressure. In contrast, a rise in the interest rate will increase borrowing costs, and reduce the liquidity in the market. Therefore, it has the effect of suppressing consumption and curbing inflation. Meanwhile, higher yields will attract more money converted into the country's currency, increasing the likelihood of currency appreciation.
There are a wide variety of FOREX currency pairs. To engage in FOREX trading, investors generally choose to start with major currency pairs. Major currency pairs refer to those involving the US dollar. The most popular currency pairs are EUR/USD, USD/JPY, etc.
This is because the countries represented by the currency pairs have great international influences and high trading volumes. The currencies are highly liquid in the market and have dramatic volatility. There are frequent major economic news and data releases (for example: NFP, inflation rate, and central bank policy) for investors to analyse currency trends. Therefore, it will be relatively simple for investors to start with these currency pairs.
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