Currencies are traded in a decentralized market called the foreign exchange market (forex, FX, or currency market). When it comes to the volumes of trading, it is the largest market in the world. The foreign exchange market is unique because of the following characteristics:
- Its huge trading volume
- Its geographical dispersion
- It operates 24 hours a day, except weekends
- The variety of factors that affect exchange rates
- The low margins of relative profit
- The use of leverage to enhance profit and loss margins
Here are a few FAQs related to Currency Trading:
What is currency trading?
Trading is an international activity, while currencies are national in nature. Since international trade-based transactions are settled in global currencies, they have to be bought or sold for one another. This process is called Currency Trading.
How are currency prices determined?
The major determinants of currency prices are interest rates, international trade, inflation, and political stability. Governments are also known to actively participate in the currency exchange activities to influence the value of their currencies.
Why does the demand and supply of a currency fluctuate?
The demand and supply of a currency is majorly dependent on the import and export earnings. An increase in exports leads to a rise in supply, while an increase in imports leads to a rise in demand. There are various subjective reasons as well, which include directional viewpoints of market participants, expectations of national economic performance, confidence in a country's economy, etc.
If I am not exposed to foreign exchange risks, what does a currency futures exchange mean to me?
If you are an investor, it does affect you. You can always benefit from the fluctuations in the currency exchange rates by investing in equities. However, there is a risk involved here. You may lose money in case the price does not fluctuate as per your anticipation. Therefore, one must be knowledgeable about currencies before investing in this market.
What are the risks involved?
The only risks involved are purely based on exchange rate fluctuations. Also, there is no rule of thumb to determine the rise and fall in currency prices. Thus, one has to rely totally on judgment and knowledge while assessing potential risks.
Currency Trading may not be everyone’s cup of tea. This is why Destimoney aims to help you with your international trading activities by aiding you with currency exchange/trade. Join hands with us for the best experience!