Learn Forex-Introduction to Forex Rates and Fluctuation

I do firmly believe that all the Forex traders who are ready to enter the risky market know clearly that the Forex market is the financial market with the most volatile Forex rates all over the world. The possibility of making profits overnight is seemingly the most attractive thing to Forex traders; however, trading Forex is not that easy as playing tricks. It is a must for anyone who wants to win the game to know every single detail of the Forex market well. Now, the purpose of this post is to help Forex traders understand Forex rates and fluctuation well.
First, let me give you the definition of Forex rates. Forex rates are the rates at which one currency can be exchanged for another. It is not a bit hard for you to understand that if you are traveling to another country, the first and for most important thing you need to do it to “buy” the local currency. That is to say, the Forex rates are the price at which you can buy that currency.
Actually there are two ways that the Forex rates can be determined: fixed Forex rates and floating Forex rates. Fixed, or pegged, Forex rates are rates the central bank sets and maintains as the official Forex rates. A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen or a basket of currencies). In order to maintain the local Forex rate, the central bank buys and sells its own currency on the Forex market in return for the currency to which it is fixed.
Unlike the fixed Forex rates, floating ones are determined by the private market through supply and demand. Floating Forex rates are often termed “self-correcting,” as any differences in supply and demand will automatically be corrected in the market. Look at this simplified model: if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and services. This in turn will generate more jobs, causing an auto-correction in the market. In a word, floating Forex rates are constantly changing all the time, affected by many economic and even other factors.
To be honest with you, actually no Forex rates are totally fixed or floating. Even when the Forex rates are fixed, pressures from the Forex market can also have great influences on them. Sometimes, when a local currency reflects its true value against its pegged currency, a “black market” (which is more reflective of actual supply and demand) may develop. The central bank will often then be forced to revalue or devalue the official Forex rate in order to keep the local currency in line with unofficial ones, thereby halting the activity of the black market.
In terms of the situation of floating Forex rates, the central bank may also intervene when it is necessary to ensure the stability and to avoid much too inflation. However, it is not that commonly seen.
Above all are just the basics that I want to share with you about the Forex rates, hope it can do you good in understanding the Forex market from every single aspect!

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