|08-14-2014, 12:24 AM||#1|
Forex Market- A Short Look At Currency Correlations
Forex market offers no limitation in terms of time or place as you are planning to make your first trade in the market. You can trade currencies in any trading zone and at any time of the day and night. The top three currency traders among the currency dealers Japan, New York and London are efficient in trading with forex 24 hours a day. It is only on Friday that Japanese market shuts its doors but then Europe opens its trading market right after one day i.e. on Monday. The mainstream forex trading lies is in the hands of banks, brokerages and different investment companies. The forex market reaches an average daily turnover that is 30 times higher than any other United States market.
Acting as an addition to the drive for supply and demand, the foreign exchange market presses on as the scope for profit potential amongst various currency dealers is progressively rising. The uniqueness of forex market is depicted by the use of free floating system that is considered more practical for today’s currency trading. This type of system can experience a change in currency rates at an estimated time interval of 4.8 seconds. Forex market has taken on a phenomenal role in country’s economy as it has been converted from connective financial centers to one unified market. Being an exclusive worldwide market, forex is reflecting the constant growth of all international trades along with their countries. While considering the extent of foreign exchange market, it is important to understand the fact that any transaction which are made with a future trading broker or an independent broker, may lead to even more number of transactions. This is due to the fact that brokerage businesses are done with constant readjustment of their positions.
To be an effective forex trader, it is essential to understand your overall portfolio and its sensitivity to the unpredictability of the market. This is vital because while trading foreign exchange currency, these currencies are traded in pairs and no single pair can be traded independently without the other. Acquiring a complete understanding of these correlations and how they can alter your trade can help you use them to your advantage in order to take control of your portfolio’s exposure.
You might wonder that why currencies are traded in pairs. This is due to the reason that the interdependence among these currencies has emerged from more than the fact that they are in pairs. We know that while some currency moves right behind the other, there are other currencies that move in exact different direction from its paired currency which often results in a more complex force. In the financial world of trading, correlation between currencies is the statistical measure of relationship developing between two securities.
Correlations are unpredictable and they can also be quite unstable at times. Just like other factors that keep changing on daily basis, correlations are also susceptible to change which makes correlations shifts vitally important for traders. Today’s correlations may not be in line with the long-term ones involving any two currency pairs. It is often suggested by forex experts to take a look at past six months trading correlations to get a more clear perspective on the average relationship between any two currency pairs that you chose to trade with. This alteration is the result of variety of causes out of which the most common being a currency pair’s disposition to community prices, the deviating pecuniary policies and certain unpredictable unique political and economic circumstances. The foreign exchange market will continue to grow and expand at a steady pace as more currency traders become attentive of forex trends and market potential for raising capital.
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