Understanding the Mechanics of Trading

A foreign exchange transaction is merely an exchange of one currency or national money for another. The rate between these currencies is the price of one expressed in terms of the other and depends mainly on the relationship between the demand for and supply of the particular currencies involved. These are, however, the definitions broken down to their most simplistic forms and they do not come close to describing the inner processes and relationships governing the constantly changing, vibrant foreign exchange market.

Every single foreign exchange transaction in the world is a link in a never-ending chain at the end of which there are two parties who wish to exchange foreign currencies in opposite directions. These transactions serves commercial participants doing business internationally, money market investors and fund managers seeking higher differentials between interest- and exchange rates, central banks supporting currencies or topping up foreign capital reserves and private investors speculating for profit on short term currency fluctuations. In recent years, the speculators have become the driving force behind intra-day currency fluctuations and today they account for more than 60% of daily volumes traded on the inter-bank foreign exchange market. 

The sudden and rapid increase in speculators joining the market on a daily basis brought about a new demand for a higher level of personalized service, better methods of pricing and trade executions and a higher degree of accountability by institutions offering trading and brokering services. These demands were quickly and very effectively met by a growing number of clearing brokers who offered the individual trader all the facilities to obtain tradable inter-bank prices in fractions of a second without the stringent deposit requirements imposed on clients trading directly with banks. Today, we find ourselves in a wonderful speculative market that is saturated with opportunities to make endless amounts of money. 

In our group's many years of trading experience on all the different types of markets, the foreign exchange market is by far the most lucrative market offering the possibility to generate consistent returns with very manageable levels of risk exposure.

However, in order to become consistently profitable as a trader, one needs to understand a lot more than just the basic theories of foreign exchange. Understanding why the market behaves the way it does and more particularly, being able to adapt to the constantly changing circumstances causing its behavior, is the single most important requirement before being able to forecast any price action. This ability to forecast short-and long-term price behavior is the only key for making money in the foreign exchange market. One of the most important aspects to understand is the fact that the currency market is not merely a study of technical patterns, but rather a study of human behavior. Daily price action is today a lot different than 10 years ago as more participants join the market on a daily basis, each impacting the market with their own views, anxieties and fears. 

Contributing even further to the effect of mass hysteria is the growing number of software packages for technical analysis offered by charting vendors worldwide. The hundreds of different chart settings and technical studies that are available often cause confusion amongst inexperienced traders and the result is that only a few of those studies are ever used for purposes of trading. The incorrect use of technical analysis together with the fact that emotions often play the leading role in the decision making process, has caused the market to become much more volatile and often uncertain about its direction. But for the professional trader, it opened up a whole world of new opportunities. Increased volatility means more movement on a daily basis, hence more opportunities to make quick profits more often. As long term currency movements are largely unaffected by the smaller players in the market, our strategies have been adapted and refined to profit from both intra-day and longer term currency movements. 

At IQ Managed Forex we respect and understand the market in all its aspects. We have gained this understanding by being part of the foreign exchange market from the beginning and through experiencing the changes as they happened over the years. The complete understanding of each currency's individual character and behavior together with our extensive understanding of the human emotions that constantly cause changes in price behavior, has allowed our group of trading specialists to become some of the very best in the world. Today, we profit tremendously by accurately forecasting short- and long-term price action on all currencies, allowing us to manage our risk precisely in order to create the maximum benefit to our customers at the least possible risk.