Many traders consider Forex as a great melting pot for international current developments because no other institution does respond to them as quickly and appropriately such as this market. In addition, Forex presents a number of significant differences from other markets, such as the stock market.
For example, trading Forex has no place in a centralized Exchange that displays daily Forex rates. Instead, all its transactions are made using either the OTC (over the counter) telephone, electronic networks or the interbank market.
You will find that there are two main sources that produce huge daily Forex turnover of approximately $ 3 trillion. The sector of speculation represents 95 95% of all Forex transactions, which are carried out in pure profit. This element, which includes investment funds, banks, corporations and individuals, generates artificial rate exposure using daily Forex rates to produce profit from price movements.
Therefore, you may be surprised to learn that the majority of Forex trading is speculative in nature. In fact, the conversion of foreign currency needs Governments and companies generate only a small percentage of the overall activity of Forex.
The overseas sector is responsible for 5% and is produced by international companies selling and purchase of materials and products abroad and convert their currency needs. This section of traders includes Governments (exporters and importers), companies and other investors who need foreign currency conversions.
The performance of enterprises in these organizations can be directly influenced by the movement oscillating of their national currency against those of their investments abroad or businesses that use daily Forex rates.
Economic factors include the economic conditions and policy development. For example, a Government may directly affect interest rates displayed by its Central Bank by introducing new financial policies. These measures may impact serious on its currency, because investors tend to follow those currencies offering the highest yields. If such announcement is made, you can observe the applicable currency effects by studying daily Forex rates.
If upheaval and political instability occurs in a country such events can have a significant negative impact on its economy and, once again, on its currency. As such developments increase risk aversion, you see almost certainly the decline of the currency in value compared to the other by examining daily Forex rates.
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