The Foreign Exchange Market FX-Market is the largest of all financial markets, with a daily turnover in excess of US $5 Trillion. The market is dominated by banks who quote the exchange rates – the buy and sell prices for different currencies. Other key participants are government, companies and individuals – the retail market.
Main location for FX market:
- UK 37%
- US 19%
- Singapore 8%
- Hong Kong 7%
- Japan 6%
- Others 23%
Forex Trading have been slower to develop in many African countries; is mostly retail and inter-bank trading.
Factors to Market Movement
Speculation
Here we are talking of traders. Forex is known to be liquid since it has the market makers ready to take your orders, but also it has many traders who speculate on a move in the market. There is never one time when these speculators would align in their bias, always there is a faction who anticipate buy and there is another faction who anticipate sells. This now create liquidity in the market. When large speculators who can enter large volumes in the market enter longs, and become net long, the market will eventually buy, it is as simple as that. Hence the market is mostly moved with speculation.
Fundamentals
We are trading currencies in a global market, this means any news or economic event happening in the real world that affect the currency has to be reflected in the market. For example, if trade balance is positive and all other factors remain constant we expect for the currency of the respective country to increase value i.e. strong dollar, strong cad etc. Reflection of these events can happen almost immediately, but can also show a significant change in value after sometime. So the trend in the market can also be influenced by an economic event.
Therefore we can speculate a move in two ways:
- Fundamental analysis
- Technical analysis
