forex trade

The United States sold $5.4 billion worth of exports to Russia in 2009, 42.3% less than in 2008. Over that sample period, American purchases of Russian imports declined by 31.9% to $18.2 billion.

Overall, the U.S. trade deficit with Russia was $12.8 billion – a 26.4% improvement over the $17.4 billion deficit in 2008.

U.S. Export Growth Industries by Product

Lower prices for Russian oil exports partly explain the improvement in America’s trade balance with Russia.

Just as important is the fact that Russia is a developing country that needs a wide range of American products.

Of the 4,847 different product categories that the U.S. shipped to Russia during 2009, 42% or 2,028 of these exports posted trade surpluses against comparable Russian imports

By devaluing the U.S. dollar against the foreign currencies of its major trade partners, America has made progress in reducing its huge trade deficit – one that hit US$811.5 billion in 2006.

The devaluation of the U.S. greenback increases the value of American exports since they are paid for in stronger currencies that translate into higher U.S. dollar amounts. At the same time, imports destined for the U.S. go down. This is partly because higher foreign exchange rates make imports so expensive that Americans will import less and simply manufacture more goods at home.

A higher dollar amount paid for U.S. exports minus less money flowing out of American wallets to pay for imports means one thing: a reduction in America’s trade deficit.

Currency Exchange Market Rates by Trade Partner

Below is a list of rates on July 16, 2007 for America’s top trading partners. The percentage in brackets shows by how much the foreign currency strengthened or weakened against the U.S. dollar since January 2007.

Does technical analysis work? Opinions differ. After all, the markets are randomly changed; we saw this announcement on Friday of the Securities Authority for Goldman Sachs. On the other hand I know that technical analysis works for me!

Previous review I published it full reasons why the market will have difficulty at the level of 1200 to 1210 points on the S & P 500 and why you should start selling as soon as the peak arrival and even opened Shorties. So, does technical analysis work? For me it works, for others not. The idea is that technical analysis is to predict changes in the stock market no matter the reason (!) Why the market rises or falls. The idea is pretty simple; the index reaches a high point – a record. Reason even the most minimal leads decline in prices. Those are pending merchants that will cause them to sell. When posting a message on the stock market is negative, then the market falls because everyone recognized and created a new record. That’s how it works …

Macro Economic Analysis

Many macro data released last week were positive economics and markets. Excellent inflation data, have excellent data, excellent real estate data, only subject to claims for unemployment benefit a bit spoiled the party with the macro data but the total outstanding data.

Next week will be published some data when the data center is real estate inflation data vendor information.

Stock Market Analysis

The stock market rose last week quickly towards resistance levels. Market increases were unexpected positive reasons – Intel’s excellent report. Macro data pushed the indices to new highs spring report of Intel and the Nasdaq index to new highs chip. The trend in the stock market was broken on Friday when a message came out of the SEC investment house Goldman Sachs is accused of selling bonds backed by bond evasion data. Immediately after the announcement the stock fell over 10% and dragged the financial sector along with it. Authority’s message was right on time when expiration begins to click on the authors. The objections were technical indices and the process of profit.

Previous review I mentioned the U.S. stock market as an engine of global capital markets. On Friday, the U.S. stock market shut down the engine another armchair indices will have to lead the world. If the stock will not take the lead, has forecast more deeply in order to correct minor. However, all indices no exception still keep rising minor trend. Only a minor trend of breaking the stock market put a more serious decline as traders are realizing profits and open Shorties. See Appendix

Bond Market Analysis
Bond market enjoyed the stock market declines government bond prices rose on Friday.

AH price is still shuffling in the range of 5%. It can work in the shuffle, support and selling resistance in Kenya, just pretty middle of the range price shuffle.

Analysis of foreign exchange forward market
Futures market, a negative trend. Nasdaq 100 contract for June is neutral.

Expiration date was in early market trading options calm and message changed the rules. The market is usually inviting suckers who enter as the rising trend then “suddenly” begin to repair panic of buyers come from the last. This time there was no need, the message is dropped the indices and options sound out of the money erased with no value as expected and in accordance with the previous forecast From Review.

Work domain next month by the options market is 1225 to 1150 points on SPX.

The euro, the currency interesting of the year, rising trend again reversed signaling minor in Kenya – 1.35 Euros / dollars. Rate could lead to rising European indices to rise and take the lead from the U.S.

Oil continues to wade through a wide range signaling weakness. Gold continues to sensitive data shuffling long macro between $ 1,115 to $ 1,107.

In recent years, the foreign exchange market could favor more and more people, it becomes a favorite for the international investors, and this is strongly related to the characteristics of the Forex market. The main characteristics of the foreign exchange market are:

1st, It consists market but no trading field
The finance industry in the western countries consist two sets of systems, namely the centralism business central operation and there is no fixed place for such business network. Stock trading is being traded through stock exchange. Like the New York Stock Exchange, the London stock market, the Tokyo stock market, respectively is American, English, the Japanese stock main transaction place, it is a centralism business financial commodity, its quoted price, the transaction time and hand over to the procedure all consist of unification the stipulation, and has established the same business association, it has formulated the same business rules. The investor could buy and sells the commodity through the broker company, this is known as "consist of trading market and trading field".

But foreign exchange business is done without any unification operation market and business network, it has no centralism unified place like the stock transaction. But, the foreign currency trading network actually is globally, and it has formed a organization which has no formal organization, the market is relied through an approval way and the advanced information system, Forex traders do not consist any membership qualification for any organization, but must obtain colleague’s trust and approval. This kind of Forex market which has no trading field is known as "consist of market but no trading field". Each day, the trading volume in the global Forex market involves billions of U.S dollars, the so huge large amount fund, is being control under both the non-centralism place and non central governance system, plus it is settle based on non-government governance.

2nd, Circulation work
Due to the different geographical position of the various financial centre, the Asian market, the European market, the Americas market because of the time difference relations, it has become an entire day 24 hour continued operation whole world foreign exchange market.

Early morning 0830 (New York time) New York market opens, 0930 Chicago market opens, 1830 Sydney opens, 1930 Tokyo opens, 2030 Hong Kong, Singapore open, before dawn 1430 Frankfurt opens, 1530 o'clock London market opens. So 24 hours uninterrupted movements, the foreign exchange market becomes a day and night market, only on Saturday, Sunday as well as the various countries' significant holiday, the foreign exchange market only then can close.

This kind of continued operation, provided no time and spatial barrier ideal outlet for investors, the Forex trader may seek the best opportunity to carry on the transaction. For instance, Forex trader buys up the Japanese Yen in the morning at the New York market, in the evening Hong Kong market opens the Japanese Yen rises, the Forex trader sells in the Hong Kong market, no matter Forex trader in where, he all may participate in any market, any time business. Therefore, the foreign exchange market may say is does not have the time and the spatial barrier market.

3rd, Zero and Game
In the stock market, the rise or the drop of stock market could influence the value of the stock whether to rise or drop, for example the Japanese new date iron stock price falls from 800 Japanese Yen to 400 Japanese Yen, the value of this stock has been reduced to half. However, in the foreign exchange market, the value of a stock and a currency is being calculated differently, this is because the exchange rate is refers to the exchange ratio both countries currency, the exchange rate change will influence one kind of monetary value to reduce and at the same time another kind of monetary value increase. For instance in 22 years ago, 1 US dollar exchanges 360 Japanese Yen, at present, 1 US dollar exchanges 110 Japanese Yen, this explains the Japanese Yen currency value rise, but US dollar currency value drops, in the end the value will not reduce or increase. Therefore, some people described the foreign currency trading is "zero and the game", exactly said is the wealth shift.

In recent years, investment foreign exchange market fund has continuously increased, the exchange rate fluctuation expands day by day, urges the wealth shift to be larger, the daily trading volume of the global foreign exchange involves 150 billion US dollars, the rise or falls 1%, means that the 150 billion funds has been shifted. Although the foreign exchange rate change is very big, but, any kind of currency will not become waste paper, even if some kind of currency unceasingly falls, however, but generally it represents certain value, only if such currency has been abolished.

Forex is the abbreviation for foreign exchange, refers to the foreign currency or the foreign country currency expresses which can be use in the international settlement payment means and the property, mainly it includes the credit instrument, disbursement voucher, the negotiable securities and the foreign exchange cash and so on.

The International Monetary Fund defined Forex as the international creditor's rights which a country has, no matter this kind of creditor's rights are express by the foreign currency or expressed by the standard currency.

Exchange Rate
Exchange rate, also known as the exchange price, it refers by a country currency being express by another country currency, or it is also the price ratio between both countries currency, generally it is being expressed by using the price proportion of both countries. For instance: USD/JPY=105.40, is being expressed a US dollar equal to 105.40 Japanese Yen, US dollar is also known as the unit currency, the Japanese Yen is known as the price currency.

In the foreign exchange market, the exchange rate is demonstrated by five numerals, for example:

Euro/US dollar: EUR/USD 1.3325

US dollar/Japanese Yen: USD/JPY 104.95

Pound/US dollar: GBP/USD 1.9337

US dollar/Swiss Franc: USD/CHF 1.2303

The exchange rate smallest change unit is, namely a final one-figure number digital change, is called an exchange rate basic point (Pip), abbreviation exchange rate spot, for example:

Euro EUR 0.0001

Japanese Yen JPY 0.01

Forex trading isn’t strange words for those who looking forward to make quick profit in the financial market. Most investors will have at least hear or read about Forex trading. If Forex is a new term to you, please do read the Introduction to the Forex market before proceed reading this Forex trading article.

Forex trading is said to be the highest risk with highest return investment (or speculation game to be more accurate) in the financial market. The amount traded in the Forex market is much larger than any stock market or even combining few stock markets. Forex trading is simply a world wide trading market running 24 hours from Monday to Friday.

Everyday, there are new Forex traders entering into trading Forex. Some of them don’t even fully understand how Forex is traded but have already trading Forex. They are not idiot who want to burn their hard earned money, it’s just because Forex market is simply too lucrative market to enter with extreme high return. Any Forex traders can easily make a double return just in few minutes time trading Forex.

Forex trading is the trading of buying or selling certain currency. For example, buying US Dollar, then selling it later at a higher price to gain profit. Forex traders may also first sell US Dollar and later on buy it back at a lower price with the same gaining profit. It’s simple strategy of selling price minus buying price to make profit. In Forex trading, we just treat currency as a good, buy it and sell it.

You might now think how can Forex trading make huge profit just by selling and buying currency? Forex is traded using margin, Forex traders don’t need to full amount to buy any currency. For example, Forex traders just need 1000 Dollar to buy up 100,000 Dollar. This allows any Forex traders to make huge profit with little money.

Another important factor that any Forex traders can make huge profit is the high fluctuation for currency. Every day every seconds, the currency exchange rate is moving up and down, the Forex exchange rate fluctuate more heavily whenever there is any important economic data being released.

In 1967, a Chicago bank rejected to provide pound loan to a professor named Milton Friedman, because his purposed was to use this fund to sell short the British pound. Mr. Friedman realized excessively that the price ratio from the British pound to US dollar at that time was high, he wanted first to sell the British pound, after the British pound fell he buys back the British pound to repay the bank again. This family bank rejects the loan offer based on the "Bretton woods Agreement" which was established 20 years ago. This agreement has fixed the various countries' currency to US dollar exchange rate, and the price ratio between the U.S dollar and the gold is also fixed to 35 US dollars to each ounce of gold.

The Bretton Woods Agreement was signed in 1944, the purposed was to prevent the currency to escape between countries, and also to limit the international speculation, thus to stabilize the international currency. Before this agreement was signed, the gold remittance standard system which was widely used since 1876 - was leading the international economy system until the First World War. In the gold remittance system, the currency was at the stable level under the support of the gold price. The gold remittance system has abolished the old time king and the ruler which depreciates the currency value unlawfully, which will lead to inflation.

But, the gold remittance standard system is certainly imperfect. Along with a country economic potentiality enhancement, it can import massive products from overseas, until it exhausts the gold reserve of certain country. It resulted the supply of the currency reduces, the interest rate raises, the economic activity will start to decline until it reaches the recession limit. Finally, the commodity price falls to the valley, gradually attracts other countries to stream in, massively rushes to purchase this country commodity. This will pour gold into this country, this will increase this country currency supplies quantity, and it will reduce the interest rate, and will create the wealth. This is so called the "the prosperity - decline” pattern and is the circulation of the gold remittance standard system, until the trade circulation and the gold freedom was broken by the First World War.

After several catastrophes wars, the Bretton Woods agreement has appeared. The countries which signed the treaty agreed to maintain the domestic currency to US dollar exchange rate, as well as the necessity of the corresponding ratio of the gold, and only allow a small fluctuation. Countries are prohibited to depreciate the currency value for the gain trade benefit, only allows the country to depreciate not more then 10%. Enters the 50's, the continuous growth of the international trade causes the fund large-scale shift which produces because of the postwar reconstruction, this causes Bretton Woods system which establishes the foreign exchange rate to lose stability.

This agreement was finally abolished in 1971, US dollar no longer could convert to gold. Until 1973, each major industrialized nation currency exchange rate fluctuation has been more freely, mainly regulates by the foreign exchange market through the currency supplies and demand quantity. The business volume, the transaction speed as well as the price variability, have achieved a comprehensive growth in the 1970's, come along with the emerge of price ratio fluctuation, the brand-new financial tool, then only the market liberalization and the trade liberalization could be achieved.

In the 1980s, along with the published of the computer and correlation technology, the international capital has flow rapidly, and strongly related the Asia, Europe and America market. Foreign exchange business volume from 80's rises daily from 70 billion US dollars to 150 billion US dollars after 20 years.


European market inflation
One of the reasons why the foreign exchange developed rapidly was the rapid development of the Euro dollar market. In a Euro dollar market, US dollar is stored beyond the border of America banks. Similarly, the European market is refers to property depositing outside the currency rightful owner country market. A Euro dollar market was formed at first in the 50's, at that time Russia deposited its petroleum income beyond the US border, avoid being freeze by the US government. This has formed a large offshore US dollar national treasury which is beyond the control of the US government. The American government has formulated a law to prohibited US dollar from lending money for the foreigner. Because the degree of freedom of the Euro dollar market is bigger and the rate of return is bigger, therefore it has large attraction. Starting from the 80's, the American company starts to borrow loan from the offshore market, they discovered that the European market is a wealth center which consists of large amount of floating capital which could provide short-term loan.

London once was (until now still is) one of the main offshore market. In the 80's, the Bank of England in order to maintain its global finance industry center dominant position, using US dollar as England pound substitution to make loan, thus to become a Euro dollar market center. London's convenient geographical position (is situated between Asian and Americas market) also helps to maintain the European market as the dominant position.

1. If you get in on Jones’ tip; get out on Jones’ tip”. If you are riding another person’s idea, ride it all the way.
   
   
2. Run early or not at all. Don't be an eleven o'clock bull or a five o'clock bear.
   
   
3. Woodrow Wilson said, "a governments first priority is to organize the common interest against special interests". Successful traders seek out market opportunities capitalizing on the reality that government's first priority is rarely achieved.
   
   
4. People who buy headlines eventually end up selling newspapers.
   
   
5. If you do not know who you are, the market is an expensive place to find out.
   
   
6. Never give advice-the smart don't need it and the stupid don't heed it.
   
   
7. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word-nobody! Thus the successful trader bases no moves on what supposedly will happen but reacts instead to what does happen.
   
   
8. Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.
   
   
9. Except in unusual circumstances, get in the habit of taking your profit too soon. Don't torment yourself if a trade continues winning without you. Chances are it won't continue long. If it does console yourself by thinking of all the times when liquidating early preserved gains you would otherwise have lost.
   
   
10. When the ship starts to sink, don't pray-jump!
    
    
11. Life never happens in a straight line. Any adult knows this. But we can too easily be hypnotized into forgetting it when contemplating a chart. Beware of the chartist's illusion.
    
    
12. Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
    
    
13. Whatever you do, whether you bet with the herd or against, think it through independently first.
    
    
14. Repeatedly reevaluate your open positions. Keep asking yourself: would I put my money into this if it were presented to me for the first time today? Is this trade progressing toward the ending position I envisioned?
    
    
15. It is a safe bet that the money lost by (short term) speculation is small compared with the gigantic sums lost by those who let their investments "ride". Long term investors are the biggest gamblers as after they make a trade they often times stay with it and end up losing it all. The intelligent trader will . By acting promptly-hold losses to a minimum.
    
    
16. As a rule of thumb good trend lines should touch at least three previous highs or lows. The more points the line catches, the better the line.
    
    
17. Volume and open interest are as important to the technician as price.
    
    
18. The clearest and easiest way to determine a trend is from previous highs and lows. Higher highs and higher lows mark an uptrend, lower highs and lower lows mark a downtrend.
    
    
19. Don't sell a quiet market after a fall because a low volume sell-off is actually a very bullish situation.
    
    
20. Prices are made in the minds of men, not in the soybean field: fear and greed can temporarily drive prices far beyond their so called real value.
    
    
21. When the market breaks through a weekly or monthly high, it is a buy signal. When it breaks through the previous weekly or monthly low, it is a sell signal.
    
    
22. Every sunken ship has a chart.
    
    
23. Take a trading break. A break will give you a detached view of the market and a fresh look at yourself and the way you want to trade for the next several weeks.
    
    
24. Assimilate into your very bones a set of trading rules that works for you.
    
    
25. The final phase in a bull move is an accelerated runaway near the top. In this phase, the market always makes you believe that you have underestimated the potential bull market. The temptation to continue pyramiding your position is strong as profits have now swelled to the point that you believe your account can stand any setback. It is imperative at this juncture to take profits on your pyramids and reduce the position back to base levels. The base position is then liquidated when it becomes apparent that the move has ended.

In recent years, the foreign exchange market could favor more and more people, it becomes a favorite for the international investors, and this is strongly related to the characteristics of the Forex market. The main characteristics of the foreign exchange market are:

1st, It consists market but no trading field
The finance industry in the western countries consist two sets of systems, namely the centralism business central operation and there is no fixed place for such business network. Stock trading is being traded through stock exchange. Like the New York Stock Exchange, the London stock market, the Tokyo stock market, respectively is American, English, the Japanese stock main transaction place, it is a centralism business financial commodity, its quoted price, the transaction time and hand over to the procedure all consist of unification the stipulation, and has established the same business association, it has formulated the same business rules. The investor could buy and sells the commodity through the broker company, this is known as "consist of trading market and trading field".

But foreign exchange business is done without any unification operation market and business network, it has no centralism unified place like the stock transaction. But, the foreign currency trading network actually is globally, and it has formed a organization which has no formal organization, the market is relied through an approval way and the advanced information system, Forex traders do not consist any membership qualification for any organization, but must obtain colleague’s trust and approval. This kind of Forex market which has no trading field is known as "consist of market but no trading field". Each day, the trading volume in the global Forex market involves billions of U.S dollars, the so huge large amount fund, is being control under both the non-centralism place and non central governance system, plus it is settle based on non-government governance.

2nd, Circulation work
Due to the different geographical position of the various financial centre, the Asian market, the European market, the Americas market because of the time difference relations, it has become an entire day 24 hour continued operation whole world foreign exchange market.

Early morning 0830 (New York time) New York market opens, 0930 Chicago market opens, 1830 Sydney opens, 1930 Tokyo opens, 2030 Hong Kong, Singapore open, before dawn 1430 Frankfurt opens, 1530 o'clock London market opens. So 24 hours uninterrupted movements, the foreign exchange market becomes a day and night market, only on Saturday, Sunday as well as the various countries' significant holiday, the foreign exchange market only then can close.

This kind of continued operation, provided no time and spatial barrier ideal outlet for investors, the Forex trader may seek the best opportunity to carry on the transaction. For instance, Forex trader buys up the Japanese Yen in the morning at the New York market, in the evening Hong Kong market opens the Japanese Yen rises, the Forex trader sells in the Hong Kong market, no matter Forex trader in where, he all may participate in any market, any time business. Therefore, the foreign exchange market may say is does not have the time and the spatial barrier market.

3rd, Zero and Game
In the stock market, the rise or the drop of stock market could influence the value of the stock whether to rise or drop, for example the Japanese new date iron stock price falls from 800 Japanese Yen to 400 Japanese Yen, the value of this stock has been reduced to half. However, in the foreign exchange market, the value of a stock and a currency is being calculated differently, this is because the exchange rate is refers to the exchange ratio both countries currency, the exchange rate change will influence one kind of monetary value to reduce and at the same time another kind of monetary value increase. For instance in 22 years ago, 1 US dollar exchanges 360 Japanese Yen, at present, 1 US dollar exchanges 110 Japanese Yen, this explains the Japanese Yen currency value rise, but US dollar currency value drops, in the end the value will not reduce or increase. Therefore, some people described the foreign currency trading is "zero and the game", exactly said is the wealth shift.

Trade and investment
Import and export business, people pays one kind of currency when doing business, but when earns another kind of currency when receive the commodity. This means that, when settling account, business people will pay and receive different currencies. Therefore, they must convert the currencies that they received into the currencies that they could buy commodities. With this similar, when buying a foreign property a company must use the concerned country's currency to make payment, therefore, it needs to convert the domestic currency is concerned country's currency.

Speculation
Currencies exchange rates could fluctuate according to the demand and supply between two currencies. A Forex trader buys up one kind of currency in an exchange rate, but up casts this currency in another more advantageous exchange rate, he may gain. Speculation has occupied most of the Forex market.

Hedging
Due to the fluctuation between two currencies, those companies who owns foreign asset (for example factory), when these companies convert these properties into cost country currencies, there consist of certain risks. When the value of a foreign asset which is estimated based on foreign currencies remained unchanged, if the exchange rate changes, when converting this property value according to the domestic currency, there could be profit and loss. The company may eliminate such hidden risk through hedging. This carries out a foreign currency trading, its transaction result just counterbalances the foreign currency property profit and loss which produces by the exchange rate change.

Forex Market Development
The history of the Forex market as an international capital speculation market is much shorter compared the stock, the gold, the stock, the interest market, but it is developing in an astonishing speed. Today, the foreign exchange market daily trading volume has amounted to 150 billion US dollars, it’s scale has gone far beyond the stock, the stock and other finance commodity markets, it has became the world's most biggest sole finance market and the also the speculation market. Since the birth of the foreign exchange market, the fluctuation of the exchange rate of the Forex market is becoming bigger. In September 1985, 1 US dollar exchanged 220 Japanese Yen, but in May 1986, 1 US dollar only could exchange 160 Japanese Yen, in 8 months, the Japanese Yen has revalued 27%. In recent years, the foreign exchange market wave amplitude has been bigger, on September 8, 1992, 1 pound exchanged 2.0100 US dollars, on November 10, 1 pound exchanged 1.5080 US dollars, in the short two months, the pound exchanged US dollar exchange rate to fall more than 5,000, depreciated 25%. Not only that, presently, everyday the fluctuation of the exchange rate of the Forex market enlarges unceasingly, within a day the rise and drop 2% to 3% is commonly seen. On September 16, 1992, the pound exchanged US dollar from 1.8755 to fall to 1.7850, the pound on first lowers 5%.

Due to the large fluctuation of the Forex market, it has created more opportunities for the investor, attracted more and more investors to join this ranks.

Being the main force driving the global economic market, currency is no doubt an essential element for a country. However, in order for all the countries with different currencies to trade with one another, a system of exchange rate between their currencies is needed; this system, is formally known as foreign exchange or currency exchange.

In the early days, the system of currency exchange is supported solely by the gold amount held in the vault of a country. However, this system is no longer appropriate now due to inflation and hence, the value of one’s currency nowadays is determined through the market forces alone. In order to determine the value of a currency’s exchange rate, two main types of system is used which is floating currency and pegged currency.

For floating exchange rate, its value is determined by the supply and demand of the global market where the supply and demand is bound by all these factors such as foreign investment, inflation and ratios of import and export. Normally, this system is adopted by most of the advance countries like for example UK, US and Canada. All of these countries have a similarity where their market is well developed and stable in economic terms. These countries choose to practice this system due to the reason where floating exchange rate is proven to be much more efficient compared to the pegged exchange rate. The reason behind this is because for floating exchange rate, the market itself will re-adjust the exchange rate real-time in order to portray the actual inflation and other economic forces. However, every system has its own flaw and so does the floating exchange rate system. For instance, if a country suffers from economic instability due to various reasons such as political issues, a floating exchange rate system will certainly discourage investment due to the high risk of suffering from inflationary disaster or sudden slump in exchange rate.

Another form of exchange rate is known as pegged exchange rate. This is a system where the value of the exchange rate is fixed by the government of a country and not the supply and demand of the market. This system is called pegged exchange rate because the value of a country’s currency is fixed to another country’s currency. As a result, the value of the pegged currency will not fluctuate unlike the floating currency. The working principle behind this system is slightly complicated where the government of a country will fixed the exchange rate of their currency and when there is a demand for a certain currency resulting a rise in the exchange rate, the government will have to release enough of that currency into the market in order to meet that demand. However, there is a fatal flaw in this system where if the pegged exchange rate is not controlled properly, panics may arise within the country and as a result of that, people will be rushing to exchange their money into a more stable currency. When that happens, the sudden overflow of that country’s currency into the market will decrease the value of their exchange rate and in the end, their currency will be worthless. Due to this reason, only those under-developed or developing countries will practice this method as a form to control the inflation rate.

However, the truth is, most of the countries do not fully practice the floating exchange rate or the pegged exchange rate method in reality. Instead, they use a hybrid system known as floating peg. Floating peg is the combination of the two main systems where one country will normally fixed their exchange rate to the US Dollars and after that, they will constantly review their peg rate in order to stay in line with the actual market value.

The Foreign exchange market, or commonly known as FOREX, is the largest and most prolific financial market because each day, more than 1 trillion worth of currency exchange takes place between investors, speculators and countries. From this, we can deduce that the actual mechanism behind the world of foreign exchange is far more complicated than what we may already know, and that, the information mentioned earlier is just the tip of an iceberg.