Forex Trading Fundamentals Understanding Trading Fundamentals

 

Forex Trading Fundamentals

Understanding Trading Fundamentals

What are Forex Reserves?

Forex reserves are foreign currencies held by a central bank in order to grant greater flexibility and resilience.

A reserve is any currency held by a financial authority which is centralised. The reserve assets can be used to endure market shocks if a particular currency becomes devalued or suddenly crashes. Higher foreign currency reserves ultimately mean lower risks associated with exchange rate fluctuations.

Forex reserves are usually held in US dollars, British pound sterling, euros, Chinese yuan or Japanese yen. This is due to these currencies being the most common on the foreign exchange market.

What are Forex Signals?

Forex signals are trade forecasts usually issued by knowledgeable and experienced signal providers.

The signals are based upon a series of technical analyses or news events, and are used by traders to help them decide whether they should buy or sell a currency pair. Day traders in particular may use a variety of forex signals to inform their next trade. Forex signal systems produce either manual or automated signals.

In a manual system, the trader actively looks for signals and interprets them to choose whether to buy or sell. In an automated system, the software identifies a signal and makes the programmed response.

What is Foreign Exchange?

Foreign exchange is the market where one currency is exchanged for another. It is always done in pairs; for example if a trader wants to buy Euro and sell the US Dollar, then he would be trading the EUR/USD currency pair.

Similarly if a trader wants to sell the US Dollar and buy the Japanese Yen he would be trading the USD/JPY pair. The price of a currency pair is called the exchange rate. It is determined by political, economic and environmental factors.

Transactions in foreign exchange are usually conducted in high volumes. Foreign exchange market has no physical location and hence it is called a decentralised market. It is open 24 hours a day, 5 days a week and is the largest market in the world.