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Understand the Basics of the Forex Market

April 7, 2010 5:47 am admin Investing

Before going into how one can learn to trade forex, it is important to understand the basics of this market. The price of a country’s currency depends on its demand. Thus the price or value is more when there is more demand for its currency. The stronger a country’s economy, the more goods and services produced by it, the more ‘money’ required to pay for these. This is called transaction demand for money in economics.

Thus if the US economy is growing, the transaction demand for the US dollar will go up.

There is another component to the demand for money. This is the speculative demand. Simply spoken, this means that when speculators expect a particular currency to become sought after in future, in anticipation of raised prices in the future, they will try to buy and hoard this currency. This will increase the speculative demand component of the demand for the currency.