Influences on the Market

Most of the trades in Forex are held for less than 7 days The primary factors that influence exchange rates are the balance of international payments for goods and services, the state of the economy, political developments as well as various other psychological factors. In addition, fundamental economic forces such as inflation and interest rates will constantly influence currency prices. In addition Central banks sometimes participate in the FOREX market by buying extremely large sums of one currency for another - this is referred to as Central Bank intervention. Central banks can also influence currency prices by changing their country's short-term interest rate to make it relatively more or less attractive to foreigners. Any of these broad-based economic conditions can cause sudden and dramatic currency price swings. The fastest moves, however, occur usually when information is released that is unexpected by the market at large. This is a key concept because what drives the currency market in many cases is the anticipation of an economic condition rather than the condition itself.

Activities by professional currency managers, generally on behalf of a pool of funds, have also become a factor moving the market. While professional managers may behave independently and view the market from a unique perspective, most, if not all, are at least aware of important technical chart points in each major currency. As the market approaches major 'support' or 'resistance' levels, price-action becomes more technically oriented and the reactions of many managers are often predictable and similar. These market periods may also result in sudden and dramatic price swings. Traders make decisions on both technical factors and economic fundamentals. Technical traders
use charts to identify trading opportunities whereas fundamentalists predict movements in exchange rates by interpreting a wide variety of data, which range from breaking news to economic reports.
Benefits of Forex Trading
1. LIQUIDITY: FOREX investors never have to worry about being "stuck" in a position due to a lack of   market interest. In this US$1.5 trillion dollar per day market, major international banks are always      willing to provide both a bid (buying) and ask (selling) price. Liquidity is a powerful attraction to any investor as it suggests the freedom to open or close a position at will. Because the market is highly liquid, most trades can be executed at a single market price. This avoids the problem of slippage found in futures and other exchange-traded instruments where only limited quantities can be traded at one time at a given price. The six major currencies (JPY, EUR, CHF, GBP, CAD & AUD) are generally considered to be the most liquid.

2. LEVERAGE: FOREX investors are permitted to trade foreign currencies on a highly leveraged basis - up to 100 times their investment with some brokers. An investment of US $10,000 would permit one to trade up to US $1,000,000 worth of any particular currency.

3. HOURS: A substantial attraction for participants in the FOREX market is that it is open 24 hours per day.  An individual can react to news when it breaks, rather than waiting for the opening bell when everyone else has the same information, as is the case in many markets. This may enable market participants to take positions before an important piece of information is fully factored into the exchange rate. High liquidity and 24 hour trading allow market participants to exit or open a new position regardless of the hour.

Sam Seiden - Author
Sam brings over 15 years experience of equities, forex, options and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.

Points of interest:
• Chicago Mercantile Exchange Floor
• Author of Market Advisory Letters
• Fund Manager/CTA
• Speaker to Investment Groups, Universities, and Private Seminars
• Contributing Author for Stocks, Futures, and Options Magazine, Active Trader Magazine, and Futures Magazine
• Trading and Investment Conference Speaker