Market and Trader Perceptions on Forex Trading

by : Justin Stewart

Forex trading is something that many people to not understand. While they hear of the dollar 'fluctuation', they never quite understand the process or what it means. Forex trading allows banks and other agencies and entities to trade actual currency from around the world on a 24 hour basis (minus weekends). The market moves over 3 trillion dollars a day, so it is easy to see why the process can be confusing and overwhelming at best. While there are multiple factors that affect the direction of the movement of money on the forex market, the market and trader perceptions can help to understand some of the movement on the forex market. Understanding these factors and seeing how they play out can help you understand how and why people play the 'forex' game to try to achieve returns on their investments.

The trends on the forex market are often long and consistent; unlike stocks that tend to move up and down, over and under, the currency market tends to have long trends. Because of the mass amount of movement on the forex market, it is hard for a currency to move drastically and severely in a short amount of time. The long trends come from the mass in the market moving toward the trend.

When there is a major event in the world, the country that it happens to is easily affected. Because these events are usually somewhat negative, the country is also affected in a negative way. The forex market easily picks up on these major events because of the investors who are trading currency on the market. When the see something happening to a country, they may move their investments to a country and currency that is seen as strong and being unaffected by the event.

A lot of people who are trying to make returns on their investments in the forex market will try to pick up the currency change before it happens. They will know or predict an event or case that will make a currency rise in the forex market. Once the event has happened, they will sell the currency or trade to another, getting them more money. This is just like playing the market in the stock market. The problem with this is that, as previously stated, the trends that happen in the forex market are often long-term and drawn out. Because there is a lack of direct major change, those without huge investments will fail to see a major change quickly in the currency that they are trying to 'play'.

People will often try to use different economic numbers to predict and explain why the forex markets move as they do. Because of the amount of numbers there are, this can become extreme, but will make people watch numbers to try to figure out how to best make the most with their investments.