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jenniwings353

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How Currency Exchange Rates Are Determined

Currency rates of exchange appear to be moving in response to so many factors that it makes it almost impossible to ascertain where the rate of exchange is likely to be headed.  Rather than paying attention to the multitude of variables, it is more sensible to focus on the essential variable. As far as currency rate of exchange determination is concerned, this variable is the relative changes in the purchasing power of various monies. In short, it is the relative purchasing power of various monies that sets the underlying rate of exchange. A price of a basket of goods is the amount of money paid for the basket. We can also say that the amount of money paid for a basket of goods is the purchasing power of money with respect to the basket of goods.An important factor in setting t...

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Why do countries trade?

Countries trade with each other when, on their own, they do not have the resources, or capacity to satisfy their own needs and wants. By developing and exploiting their domestic scarce resources, countries can produce a surplus, and trade this for the resources they need. Specialisation Specialisation is the second fundamental principle associated with trade, and results from the division of labour. Given that each worker, or each producer, is given a specialist role, they are likely to become efficient contributors to the overall process of production, and to the finished product. Hence, specialisation can generate further benefits in terms of efficiency and productivity. The advantages of trade International trade brings a number of valuable benefits to a country, includ...

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Risks Involved in Forex Trading

Risks Involved in Forex Trading • You can lose more than your initial deposit. • Forex trading – like any form of trading – is not without risk. • Some may even suggest that trading in the forex market actually carries above-average risk. • The one rule you must hold above all else is to trade only using your risk capital. • In other words, never trade more than you can afford to lose. Leveraged trading carries a high degree of risk Trading with leverage can be a profitable way to stretch your capital. As a trader, you can leverage the funds in your account and potentially generate larger profits relative to the amount you invest. But with this advantage comes the potential risk, because losses can also be greater than the total margin held. That’s why l...

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Six steps to improve your currency trading

Forex is short for Foreign Exchange and refers to a decentralized market that spans the globe and is considered the most liquid worldwide. Exchange rates fluctuate continuously due to ever changing market forces of supply and demand. Forex traders buy a currency pair if they think the exchange rate will rise and sell it if they think the opposite will happen. Unlike the Stock market, the Forex market never sleeps and remains open around the world for 24 hours per day and 5 days a week. Before the Internet revolution only large players such as banks, hedge funds and extremely wealthy individuals could participate. Now retail traders can buy, sell and speculate on currencies from the comfort of their homes with a mouse click through online brokerage accounts. There are many currency ...

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Forex Fundamentals

Have you ever thought of buying or selling money? It sounds kind of funny, but there is a way for you to do just that in the Forex market. Forex is a nickname for what is more formally known as the foreign exchange market. The foreign exchange market is the largest financial market in the world. It is estimated that somewhere between 2 and 3 trillion dollars worth of currency is exchanged every day! To put this in perspective, the New York Stock Exchange (NYSE) averages roughly $50 billion dollars in volume per day. This means that the Forex market is roughly 50 times the size of the NYSE! The Forex market is a pure market and free from any external control. It is considered a perfect market since the price of a currency is based solely on the supply and demand of a particular curre...

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Making money in forex is easy if you know how the bankers trade!

Why? Bank traders only make up 5% of the total number of forex traders with speculators accounting for the other 95%, but more importantly that 5% of bank traders account for 92% of all forex volumes. So if you don’t know how they trade, then you’re simply guessing. First let me bust the first myth about forex traders in institutions. They don’t sit there all day banging away making proprietary trading decisions. Most of the time they are simply transacting on behalf of the banks customers. It’s commonly referred to as ‘clearing the flow”. They may perform a few thousand trades a day but none of these are for their proprietary book They actually only perform 2-3 trades a week for their own trading account. These trades are the ones they are judged on at the end of the...

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How CPI Affects the Dollar Against Other Currencies

The Consumer Price Index (CPI) is a broad measure of inflation within an economy in relation to the cost of goods and services. That figure can have a significant impact on the value of a currency in relation to the currencies of other nations. The CPI calculates the weighted average of prices of a basket of consumer goods and services, including costs of transportation, food and energy. Economists use this CPI figure to assess price changes in individuals’ cost of living. When inflation is too low, a central bank like the Federal Reserve may cut interest rates in order to spur economic activity. When inflation is too high, interest rates may be raised to stabilize prices. By increasing interest rates, a consumer may be more likely inclined to save money, rather than spend it, due...

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What is Currency Trading?

Currency Trading is the act of buying and selling (trading) different currencies of the world. The Foreign Exchange (or Forex) is the market that allows you to trade currencies in volume. A currency trader – whether bank, corporation, or individual – must be well acquainted and skilled in the ways of the Forex market, monitoring and acting on the subtle changes that indicate the potential for profit. A typical scenario might go something like this: A trader is looking at the British pound (GBP) and U.S. dollar (USD). This is called a Currency Pair. The GBP is the base currency, and the USD is the secondary currency. News that the value of the GBP is up from previous reports creates a positive reaction and a spike in the value of the GBP. This, in turn, will cause a rally on the GB...

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