Foreign Currency Trading
Rapid Growth Factors
Foreign currency trading, which is also called forex currency trading is the process within the foreign currency exchange market where traders exchange the currency of one country for the currency of another country.
There are a number of primary factors that can affect foreign currency exchange rates. These as mentioned elsewhere are grouped into four categories; economic, financial, political, and crisis factors.
Factors Influencing the Rapid Growth in Foreign Currency Trading
Since the move in 1973 from a fixed exchange rate to a floating exchange rate there has been a steady growth in the volume of foreign currency exchange trading.
However, in recent years the foreign exchange industry has undergone tremendous growth. This trend looks to continue increasing in the future due to a number of influencing factors.
- Exchange Rate Fluctuation
- Fluctuations in Interest Rates
- International Trade Growth
- Increase Corporate Foreign Exchange Trading
- Advances in Telecommunications
- Developments in Computer and Software Technology
- New Foreign Exchange Trading Instruments
- High Profitability Potential
Fluctuations in Foreign Exchange Rates. The constant fluctuations in the foreign currency exchange rates is a major attraction of foreign exchange trading. These fluctuations and constant adjustments in the exchange rates are an indispensable and essential condition in foreign exchange trading. It is this volatility in the exchange rates that gives rise to the potential high profitability of foreign exchange trading.
Fluctuations in Interest Rates. The increase in economic globalization and cross-border trade impacts significantly on the interest rates of the different trading nations as they try to adjust to the constant demands and changes affecting their economies. These constant fluctuations in the interest rates within the different trading nations can have a significant impact on foreign exchange rates.
Increasing Growth in International Trade. The increase in global trade has also led to an increase in demand for raw materials and new markets for goods and services. This increase in economic activity between countries also results in an increase in foreign exchange transactions. As this increase in foreign trade grows there is a corresponding growth in foreign exchange trading.
Increased Corporate Foreign Exchange Trading. Although many companies still consider foreign exchange as a cost of doing business there are an increasing number that recognize that through accurate management of their foreign exchange transactions they could enhance their companies profitability. Although many companies use foreign exchange as a means of hedging, there are a growing number of them that also trade in foreign currencies market as a means of increasing their profits.
Advances in Telecommunications. In the 1970s and early 1980s foreign exchange trading was usually conducted via the telephone and telex. As a result of the rapid advances in telecommunications you can now access and trade foreign exchange online via the internet or your mobile phone.
Advances in Software Technology. Advances in software technology for stock trading and the use of automated trading systems now makes it easier for just about anyone to trade the foreign currency market.
New Foreign Exchange Trading Instruments. As the foreign exchange market rapidly grows and more and more money is being exchanged new trading avenues have become available such as currency futures and currency options.
High Profitability Potential. In foreign exchange trading there limited risk as there is no bear market, only a bull market since currencies are always being traded. Therefore the potential for very high profits is always there, and when traded accurately vast profits can be made, as evident by banks trading in foreign currencies.
These factors, together with the ease of entry into trading foreign exchange, and a twenty-four hour market, will continue to ensure further growth in foreign currency trading.
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