What is Forex trading?
Currency trading, sometimes referred to as forex trading or forex trading, is the process of converting one currency into another. The market for foreign exchange is among the most active markets for trading around the globe with transactions in currencies of 6.6 trillion dollars every day.
While a lot of forex trading takes place in order to make money but the bulk of trading in forex is based on traders who want to earn a profit. The volume of money that is exchanged each day could make price fluctuations for certain currencies very volatile. This is something you must be aware of prior to deciding to start forex trading.
Which currency pairs are there?
Currency pairs are the combination of two currencies which are traded against each other. There are many different combinations available However, the most well-known are the Euro in relation to the US Dollar (EUR/USD), the US Dollar against the Japanese Yen (USD/JPY) and the British Pound against the US Dollar (GBP /USD).
What is it to buy or sell the currency pair?
When you buy a currency pair, you are confident that the price will increase which indicates that the currency of the base currency is growing in comparison to the counterpart currency. In contrast, selling the currency pair means that you think the price will drop and this would occur if the base currency fell against the currency of the counter. For instance, you buy EUR/USD if you think the euro will gain strength against the dollar, which means that you require more dollars in order to purchase a single euro. You can also sell this pair if you believe the euro is going to weaken against the dollar, which means that you require less dollars to buy one euro.
What are the main factors that drive the foreign markets?
- Central banks
- News reporting
- Market sentiment
The market for foreign exchange is comprised of currencies from around the globe and is therefore difficult to establish forecasts as there are numerous factors that could influence price fluctuations. In the end these factors could influence the market for forex.
The supply of a currency is managed by central banks who are able to announce measures that could be significant in affecting the cost of the currency. Quantitative measures may include as simple as injecting more money into the economy, which could result in a currency’s value to drop according to an increase in the supply.
Investors, including commercial banks, tend to prefer to put their money into areas with good prospects. Positive news about an area, therefore, can encourage investment and increase the demand for the currency of the region. If news is negative it is possible for demand to drop. Therefore, currencies tend to reflect the prosperity of the region in which they are based.
A market’s sentiment, which typically responds to news events, can play an important part in determining the value of currencies. If a trader believes the price of a currency will rise in a specific direction, he’ll take trade-related decisions based upon this and may even convince other traders to follow suit. As a result they can either increase or decrease in the market demand.
Also Read: Developing Automated Forex Trading System
Learn how to trade currencies
Traditionally, a broker for forex will buy and sell currencies to their customers. If you are a member of a platform for trading such as ours, you are able to invest in market currencies with financial derivatives like turbo warrants, CFDs, vanilla options and barriers.
If you are trading the instruments you use, they do not become the owner of a real currency. Instead, you make use of derivatives in order to make trades based on changes. It means you could take a position on an FX pair and not hold either currency.
Accounting for Forex
When you trade, exchange or dispose of foreign currency it is taxed. Currency pairs are taxed for the tax year during which the transaction involving the currency pair is completed. Tax Agency Tax Agency considers that the costs incurred for these transactions should be included when calculating capital gain and any rollover fees that are charged separately. The loss or profit is changed into Swedish Kronor. Every sale of the asset will be taxed as a separate transaction. The purchase price as well as the sale consideration have to be converted into Swedish Kronor. This is even if you weren’t a resident of Sweden at the time you purchased the asset.
The cost should be calculated using the method of average if you’ve purchased the same kind of property, such as the same currency, but at different times. It is the Swedish Tax Agency considers that any loss on the market-quoted receivables in foreign currency is fully tax-deductible.
If you exchanged the proceeds at the time of acquisition or disposal date, the current exchange rate will be used for capital gain calculations. The same is true for those who exchange their proceeds of the sale within 30 days from the date of disposal. If you haven’t exchanged the proceeds, you must use the fixed rate which Nasdaq Stockholm AB determines every morning, based on a calculation of an average value for commercial banks middle-rates. The middle rate is determined by the market players in the financial sector each day of the banking day. It is the purchase price and the price of selling multiplied by 2. Information on today’s fixed rate is accessible on the Nasdaq website as well as the Riksbank’s site. If there aren’t any fixed rates for any particular currency, you may take an average of each transaction day’