For any investor trading in any market price is
the crucial and important point. For the buyer it is always a job where he
would like to get the best deal without enough loosing up his pocket. While for
the seller it would be just an opposite case where he would be keen to get as
much as he can on his stuff. The only time a deal is fixed when both the buyer
and the seller are ready on a particular price. When we talk about Forex here
money is in the form of goods, but the principle of trading is just like any
other trading. The only difference is that here one currency is considered
against the other.
The only query an investor is considerate about
is “how the price will fluctuate”? If he thinks that the currency is about to
boost against the other one he would buy it else if he thinks that it will be
depreciated then he will sell it.
For an investor to judge about the fluctuations
of the currency he should know how it is formed and on what factors it depends
on. A very basic proposed theory is that the present value of currency
replicates about all the factors which can influence the price, such as
economic, technical, political, natural and other. Sometimes it is very
difficult for an investor to keep in mind all the factors at a same time.
Let us take an example to understand the concept
(on just technical analysis and regardless fundamental knowledge). In the above
taken situation and an absolutely free market the price depends on demand and
supply. Demand as the name suggests it is the total volume of the financial
instrument that traders in the market will want to get in the future. It is determined
on the basis of claims for purchase set at the market. Supply, on
the other hand, is a total volume of this financial instrument that is set
for selling by traders.
The demand and supply can be explained as:-
·
The increment in demand will lead to increase in the prices.
· The
increment in supply signifies decrease in prices.
Whereas Spread can be defined as the difference
between the minimum prices and to sell at the peak price of demand. This
difference will always be fluctuating as the market tends to counterfeit ahead.
Let us take an example, suppose the price of EUR/USD is equal to
1.35513/1.35550. It means that during this period it is possible to but euro at
the price of 1.35550(lowest price at which it can be buyed) and it is possible
to sell it at the price of 1.35513(highest price at which it can be sold by an
investor).
But in case an investor is not interested in buying at a price of
1.35550 he can set an order for purchase at the level of 1.35500 and wait until
the price is reached at this level. This situation will arise only when demand
it constant, and the supply is increased. In such cases the sellers will not
have any option other than lowering the price to 1.35500
No comments:
Post a Comment