It’s a well known fact that currency rates go up and down every day. What most people don’t realise is that there is a foreign exchange market where you can potentially profit from the movement of these currencies. So let’s understand currency trading and why the value of currencies fluctuate.
The foreign exchange market is the largest financial market on Earth with a trading volume that can average more than $3 trillion per day. That’s a lot of money changing hands and trading currencies is becoming increasingly popular. There are many reasons for this.
As compared to the other trading avenues, with Investment/Mining, you can trade currencies in intervals of minutes and hours. The advancements in Internet technology have also made the foreign exchange market a lot more accessible to people. The trick is to understand how currency trading works.
For example, foreign exchange is a 24-hour market but it’s divided into the European, Asian and U.S. trading sessions. Although there is some overlap in the sessions, the main currencies in each market are traded mostly during specific market hours. Additionally, currencies are always traded in pairs.
The currency on the left (the Euro here) is known as “the base”. The currency on the right (the USD here) is known as “the counter”. See how to trade EUR/USD
Events like the United States Non Farm Payrolls measure monthly changes relating to employment figures of a given population. An increase in unemployment signals a slowdown in the economy and possible devaluation of the country’s currency because of declining confidence and lower demand.
The U.S. NFP is one of the most anticipated employment reports because it is a reliable indicator of employment in the U.S. economy and it’s not something you want to miss.
The minimum bid rate issued by the European Central Bank is considered by traders to have a major impact on the financial markets. In particular, Euro currency pairs are affected because this event relates to the interest charged by the ECB for loans it gives to banks across Europe.
For example, when an economy is overheating, central banks may raise interest rates to make borrowing more expensive. This increases the yields for assets denominated in the currency, which increases demand by investors and causes an increase in the value of the currency.
Around the 19th of every month, the Bureau of Economic Analysis releases the Trade Balance Report. This report relates to the imports and exports of the United States and is a good indicator of the the health of the U.S. economy and its relationship with the rest of the world.
In general, when exports are greater than imports, this is a good sign for a country’s economy and could translate into an increased value of its currency. This is because trade balance impacts the supply and demand for a currency. When a country has a trade surplus, demand for its currency increases as foreign buyers exchange more of their home currency to buy goods.
EUR/USD is the abbreviation for the euro and U.S. dollar currency pair and indicates how many U.S. dollars are needed to purchase one euro (the base currency). EUR/USD is affected by factors that influence the value of the two currencies in relation to each other and to other currencies.
GBP/USD is the abbreviation for the British pound and U.S. dollar currency pair. According to the current Bank for International Settlements (BIS) survey, GBP/USD is the third most traded currency pair, comprising 14% of the total daily trading volume.
USD/CAD is the abbreviation for the U.S. dollar and Canadian dollar currency pair. It is the fourth most traded currency pair in the foreign exchange market and...
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