A Beginner’s Guide for Making Money in Forex Trading

15Forex refers to changing of a currency of one country into another’s for various end-purposes for activities mostly involving commerce or tourism. A Forex trading signal is an instruction for entering into a trade on a currency pair. That signal is either generated by an analyst or an automated software supplied to the subscriber of the Forex signal service. The signals are sent through immediate methods like email, RSS, SMS or Tweets because of the need to provide them on time.

Commercial enterprises in a country are always at risk whenever they are buying from or selling goods to other countries because of the fluctuation in currency values. Thus, the foreign exchange markets provide them with a way to hedge the risk by fixing a particular rate of transaction on which the exchange will take place. A trader can use Forex signals to buy or sell currencies in forward or swap markets at the time when the bank has locked in a rate so that he can know the exact exchange rate for his transaction and mitigate his company’s risks.

Various supply and demand factors create fluctuations in the currency values of different countries. These fluctuations can be due to interest rates, trade flows, tourism, economic strength and geopolitical risks. Traders can use the Forex signals to bet on different currencies and avail the opportunity of gaining strength or weakening the selling one against its counterpart. This opportunity exists because of changing values of currencies. The Forex signals capture this trend and provide opportunities for the subscriber to engage in a trade based on these changes.

Currency trading often involves confusion about existing risks in the minds of beginners. Since there are many factors that govern the unregulated interbank market, most people believe that a lack of oversight by a central authority leads to high risk. However, that is not quite true. Here is a brief look why:

• The interbank market industry consists of many banks trading with each other across the globe. These banks have to determine and accept sovereign risk, and credit risk and they have enough internal strength that keeps them as safe as possible. Central banks use industry generated rules and regulations to keep their currency safe and protected.

• The market is constructed by each bank’s offers and bids for a particular currency. The pricing mechanism of the market is determined by supply and demand. It is nearly impossible for any rogue trader to impact the price of any currency in such high volume market because of the huge flow within the system.

• Almost two to three trillion dollars of trading is accomplished per day and in such a scenario even the large central banks are unable to move the market without full coordination and support of other central banks.

The risk, therefore, is quite minimal if one uses Forex signals to determine what to buy and what currency to sell.

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