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Things You Should Know About FX trading

by: isdnfhj12 on Date: Mon, 8 Nov 2010 Time: 10:10 PM

FX trading or foreign Exchange trading is basically about trading currencies from different countries against each other. If you are selling US dollar and purchasing Euro, you are doing currency trading or forex trading.

FX trading is usually accomplished through a market maker or a broker. You choose two currencies or what is referred to as a "currency pair" that you think will change in value. You set the trade or the currency you want to buy or sell, depending on your prediction on what will go up or down as the case may be. An order can be made in a matter of just a few clicks to a broker who passes along the same to his partner in the Interbank Market. Once you have "closed" your position, the same is also communicated. After which your account may be credited or debited as the case may be.

The FX, forex, or currency market is actually a decentralized, world-wide financial market for trading currencies. It works 24×7, five days a week, serving as an anchor between various buyers and sellers around the world. This FX trading market determines the relative values of the different currencies. The market exists primarily to assist in international trade and investment. It helps businesses trade outside their geographies by giving them the flexibility to make and accept payments in real time. So, while a company may be earning in pounds, it can pay in dollars to its international suppliers, thanks to FX trading.

The forex market also supports speculation or "carry trade." In this, the investors borrow the low yielding currencies and then lend in higher yielding ones in an attempt to make a profit. Some of the very unique things about the FX market include its huge trading volume which means high liquidity as compared to others, huge geographical dispersion, and the length of operations. It starts trading from 20:15 GMT on Sunday and lasts till 22:00 GMT Friday.

Before you start FX trading, you should well understand the basics of how currencies move in order to make more gains and avoid losses. It may even be wise to outsource to the experts while you learn the ropes. Some of the things to consider include major economic indicators, at least those that are in the public domain. The state of a company's economy can be a great indication of how strong or weak the currency is likely to be. To determine this, you may want to consider the following:

*Gross Domestic Product or GDP: Value of all goods and services produced.
*Retail Sales: Sum of all retail activity in a country.
*Industrial Production: Production of factories, mines, and utilities in a nation.
*Consumer Price Index or CPI: Measure of the change in the prices of consumer goods across over various categories.

Apart from this, you may also want to consider the private reports generated by reputed FX trading companies. This can also give you an idea of all of the above-mentioned points, specifically interpreted from an investment point of view.

About the Author

Visit www.igmarkets.co.nz which is a leading dealer in FX trading and specializes in financial derivatives like CFDs as well as margined FX. Access an extensive range of online seminars including Introduction to Currency trading, and a free demo account.

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