The primary causes of changes in currency rates are economical forces as well as political and psychological factors.
Basic parameters of economy such as inflation, interest rates, unemployment, and many others affect exchange rates constantly and dramatically. Government policy has drastic influence on the rates too. Competence of the government in maintaining the currency is conducive for its rate increase. Decreasing interest rates stimulates decreased demand for the currency and, thus, depresses its value in the exchange operations. A decision of the Central Bank of a country to buy or sell the currency may strengthen or undermine its rate significantly.
Expectations of change in the economic conditions may lead to sudden and drastic fluctuation of the currency rate. This is the key concept, because the foreign exchange market is often controlled by expectation of changes, rather than the changes themselves.
Activity of professional currency exchange managers, especially when caused by the interests of powerful financial consortia, is another important market force. In many cases, the managers may act independently and use the market as a unique instrument to achieve their goals of changing major rates. Most, if not all of them, could not care less about the adequacy of charts used for technical analysis. Though, as major levels of resistance and support are approached, the behavior of the market becomes more and more "technical", and the reactions of large number of traders often become similar and predictable. Such periods in the market may lead to dramatic rate fluctuations, because significant funds happen to be invested in similar positions.
FOREX APPEALS TO INVESTORS
In conclusion of this short presentation of Forex, we can define the main causes of popularity of this market among both professional and amateur investors.
Liquidity. This market can absorb such daily trading volumes as to surpass the capacity of any other market. High liquidity is a powerful attractive force for any investor, because it provides freedom to open or close a position of any size at a current market rate.
Continuous access. The 24-trading is an important attraction. The Forex participants do not have to wait to react to any event, as is usual with many other markets.
Flexible control. A position on Forex may be opened for just the period of time desired by the trader.
Cost. Forex traditionally does not have any commissions exept for natural market spread between bid and ask.
Unambiguous quotations. The majority of trades may be executed at a uniform market price because of the high liquidity of the market. It allows to avoid the instability inherent to futures and other currency investments where only limited amounts of currencies may be sold at the market rate at a given time.
How can I participate?
From 1971 until recently, the real owners of this market were banks, a multinational corporation and large brokerage houses. If an individual investor wanted to invest in the market, they would have to invest about a million dollars together with a bank to satisfy the requirement of acceptable transaction size of 5 to 10 million dollars. Brokerage houses would provide a little better option of reducing the required deposit to a quarter of a million dollars.
Yet now, Forex market is open to the small individual investors. Unlike the previosly required enormous deposits, current significantly reduced margin requirements has, at last, become affordable for almost any person allowing them to run with the big dogs. Aside from that, small investors may use Internet to their advantage, making this market just as easily accessible as it used to be only for high rollers.
Now, that I understand Forex a little better, Affordable minimum
deposit allows you to enter the market at minimum expense. It should be noted, though, that a larger investment would give you dramatically increased potential and flexibility in the market.
Zero commissions do not need explanations.
You may open a trial account and test your trader skills free of charge.
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