While the stock markets have a daily volume of billions of dollars, the Forex market has a daily volume of more than $4 trillion. Forex market participants include large banks, hedge funds, other financial institutions, global corporations, and individual traders. Most Forex transactions result from currency conversions related to the day-to-day business of the world. The large daily volume of the Forex market provides endless trade opportunities and
the ability for traders to diversify into global currency markets.
What factors come into play when deciding how to trade Forex? How does that compare with trading equities? Let’s say, for example, that an economy,s inflation rate or interest rates are low and stable, its output is growing strongly, and its politics are stable. One can expect that country’s currency to remain strong versus a less fundamentally favourable currency.
Now, let’s compare that with the equity of a particular company. Suppose the domestic and global economy is strong. In that case, inflation is not rampant, competition is not taking away market share, product demand is stable, and workers are productive. You can expect that company’s stock to remain strong versus a company with less favourable fundamentals.
Similar to equities, other factors determine the short-term value of a Forex currency pair, including technical analysis, short-term supply and demand, seasonal capital flow patterns, the instrument’s current price, etc. These universal dynamics will move a currency’s value up or down. Open a live ThinkMarkets account to start trading Forex today.