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The relative value of many currencies is related to the general perception of the country's economic indicators, while economic data is regularly published, which directly leads to a noticeable change in prices in the corresponding currency pairs.
The country's interest rates, established or under the influence of clear actions of its central bank, are also an important factor determining the relative value of its currency. Higher interest rates may lead to an inflow of capital due to the purchase of bonds, but they may also lead to currency devaluation due to a perceived slowdown in economic growth.
The reaction of the currency to the level of inflation is equally important, but ambiguous, depending on which aspect of the level of inflation is considered more important for the currency at that time.
In general, forex trading is considered more subtle, although not more complex, than trading in the stock, debt and commodity markets, where the forex market follows its own logic.
The forex market presents a huge opportunity for intraday traders to apply classic day trading methods in a 24-hour market without many of the day trading restrictions seen in the stock market. Most brokers such as Gerchik & Co they also offer forex traders leverage that far exceeds what is available on stock markets.
However, the forex market is a separate market that follows its own unique logic and reasoning, and day traders must understand the driving forces behind the currencies they wish to trade before they begin trading.
From the point of view of capitalization, forex is the largest market in the world. The daily volume of trading on the foreign exchange market is more than 5 trillion dollars, so it offers participants a high degree of efficiency due to its depth and liquidity. For many traders, forex is the main means of achieving almost any financial goal.
Forex and futures are very different financial instruments, but their trading methods are very similar. Although the fundamentals of each market are unique, the application of technical analysis remains relatively constant. Standard deviation is one of the most popular technical tools used in Forex trading. So, what is the definition of deviation in forex? We will understand what standard deviation is and how it can improve your currency trading strategy.
Question number 1: What is deviation on Forex?
If you have experience working in the markets, you know that a sudden spike in volatility can close a profitable trade that will soon become unprofitable. This is where the standard deviation is most useful - it establishes the internal volatility of the currency pair even before the order is placed.
Standard deviation is a term used in statistics to measure the deviation of a set of data from its mean value. In fact, the further the value falls in relation to its average value, the greater the standard deviation. This methodology applies to many disciplines, including health care, academic sciences, and population analysis.
Forex, or the currency market on which investors and institutions trade currencies, is the largest financial market in the world. According to the three-year study of the Central Bank for 2019, about 6,5 trillion US dollars are transacted daily on the currency markets.
Although Forex trading is legal, the industry is rife with fraud and malicious actors. Investors should exercise due diligence before venturing into global financial markets, which may be a version of the Wild West.
Forex trading uses exchange rate fluctuations. "The foreign exchange market does not set the absolute value of a currency, but rather determines the value of one currency relative to another," says Robert Johnson, professor of finance at Creighton University's Heider College of Business. "You can open a position in almost any major currency against another major currency in the foreign exchange market."
For example, you can bet on the US dollar against the Japanese yen. Or the yen against the Mexican peso.
While most of the activity on currency markets is carried out by transnational corporations to hedge natural positions, individual investors sometimes speculate on currency movements.
"Investing in currencies, whether traditional currencies or cryptocurrencies, is fundamentally different from investing in stocks, bonds or real estate," says Johnson. "In the long term, investing in the stock market is a game with a positive sum," because in the long term, the value of shares increases.
"On the other hand, in both the short and long term, investing in currency is a zero-sum game," says Johnson. "When the US dollar strengthens against the yen, those who hold positions in US dollars gain, and those who hold positions in yen lose an equal and opposite amount."
For this reason, he says that those who want to create long-term wealth should stick to the stock market.
However, if you still risk entering the world of forex, you will need a forex brokerage account. The problem is that not all forex brokers care about your interests.
The simplest way to classify "long" and "short" trades is to say that in any trade you have a long position in relation to the one from which you will make a profit if its relative value increases, and less than the one from which you will make a profit , if she falls.
For example, suppose you buy shares of ABC Inc. for US dollars. Now you can say that you have a "long" share of ABC Inc. and a "short" position on the US dollar. This is due to the fact that in order to make a profit, the value of shares of ABC Inc. should rise against the US dollar or, alternatively, should the value of the US dollar fall against the shares of ABC Inc.
It should be noted that in a transaction in which you are short of currency in relation to some tangible asset, you usually call it only a "long" transaction, and not say that you have a "short" denomination. We will talk about this later. Another way to understand the difference between long and short trades is that if you make a trade in which you want the price on the chart to rise, you have a long position on this instrument. If you want the price to fall on the chart, you are missing this tool.
