The largest financial market in the world is the forex market. It stands out as a hub where all the currency rates are set in forex. Around the world we see the forex currency rate also being known as foreign exchange rate, currency exchange rate or forex rate. Basically the forex rate is the worth of one country’s currency when compared to the other national currencies.
Spot exchange rate is the name used to describe the forex currency exchange rate. You should know that forex rates are traded today but they will be delivered and paid for on a future date.
There is no doubt that for a trader the most important rate that has to be taken into account is the foreign exchange one. However, we do have different forex rates that need to be taken into account before we start forex trading. Let us take a look at them so that they can be properly understood.
1. Exchange Rate – An exchange rate between currency pairs is very easy to compute. All that is needed is to look at the two currencies analyzed and see the latest prices. This is a rate that actually translates in the price that you will pay of the first currency in order to obtain the second one.
2. Pip Value – Pip basically means Percentage in Point. The pip stands out as the smallest possible incremental move that one currency is allowed to make. Different markets will bring in different pip values.
3. Spread – This can be defined as the difference noticed between the offer price and the bid price.
4. Rollover Rates – When a transaction takes place the rollover rate is the different between interest rates of the currencies. It will be credited or debited to the account of the trader if the position is held overnight. As an example, in the event that the USD interest rate is 1% and the Swiss Franc has an interest of 0.25%, the interest rates difference is of 0.75%. Interest will be earned if you hold USD/CHF position.
5. Margin and Leverage – Leverage stands out as an ability through which a forex trader can make their account stand in a better position than the account margin. A margin is defined as the deposit that is made in order to maintain or open one position. If a user will start gaining a higher leverage then the required margin will be higher. Different brokers will have different margin requirements but the traders can always compute a minimum requirement.
Determining Forex Currency Rate
Forex currency rates will fluctuate every minute for the entire trading week. Currencies of many countries are called free floating. This basically means that when a currency rate will be free floating it will vary every single day. Only in rare cases we are going to see hourly variations. Forex currency rates are determined by different factors.
Economic Factors – Government budget deficit or surplus, fiscal policy and monetary policy are included in these factors. Other economic factors that can have an impact are inflation levels, trade levels balance, economy and economy productivity.
Political Conditions – Nation instability will always have an impact on currency rates. Also, a nation’s currency is very susceptible to different political upheavals that appear in neighboring nations.
Market Psychology – This factor, combined with trader perceptions, will have a huge impact on live forex rates.
Making Money with Forex Currency Rates
People that participate in the market will make money because of the rate fluctuations of the traded currencies. In the event that you have never traded forex before you should know that there is a need to have a live forex account in order to purchase physical currency. In order to make sure that you always trade as you should and your decisions are good you need to learn about short and long term currency variations scenarios.
It is recommended to never risk more than 1%-3% of the funds in your account at once. If you do this you protect yourself and can survive whenever something goes wrong. Also, 2 traders can always have opposite results in trading as time passes even if the exact same trading system is utilized. Money management is highly important in the forex market.
When trading forex you need to analyze the whole picture. Always think about how decisions you are making will impact others and how others can impact you. Also, make sure that you always look at the numbers and analyze trends so that you do not miss the moments when you need to stop trading.
Don’t trade rumors – trade what you see !!!
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