Trading in financial markets was once something only done by professionals or those with expert knowledge. Thanks to the digital revolution, smartphones, increased internet access, and advanced ways of obtaining knowledge, more and more casual and beginner traders are getting involved. But how does forex impact some of the world’s biggest companies in terms of their value?
How can traders educate themselves?
A big influx of new traders has meant increased demand for content designed to help them learn how to trade. There are various ways of improving their trading skills both with hands-on and hands-off approaches. Traders can use tools such as a demo account, which provides access to a fully functional account, but with fake money. They can practice trades and strategies and get to grips with the system as a whole before they use real money.
Other good ways to increase their financial literacy in terms of trading, include reading FAQs and guides published on platforms, keeping up with financial news, and following forecasts. By familiarizing themselves with this kind of content, trading will soon become second nature to these traders. There are also benefits to following trading influencers and forums online.
Acquiring this kind of knowledge makes it easier to make sense of the markets and to understand how different factors can influence different assets, sectors, and types of trading.
What impact does forex trading have on big business?
You might think that only stock trading has an impact on big businesses, but in actual fact, forex does as well. Some of the world’s biggest companies are publicly traded, such as Amazon, Facebook, and Netflix. It is not only interest in their stocks that impact them – as they are based in the US, the performance of the dollar has an effect as well.
If the US dollar is experiencing a boom in trading and is therefore becoming stronger and more valuable, this is beneficial to US-based companies such as those mentioned above. But the performance of other currencies can also impact these big names. Most of these companies have worldwide operations and therefore depend on how the euro, sterling, yen, and other major world currencies behave.
Let’s stick with the US as an example. If the dollar is weak, it reduces spending power for US-based citizens. This means they could end up shopping with a lower-priced competitor or not at all. It can also impact trade with countries that have stronger currencies.
If for example, Netflix has a three-year contract with an EU company and the value of the dollar falls against the euro, this can negatively impact exchange rates for the US company, leading to a decline in profitability.
What are the most important currency pairs?
The US dollar is widely considered the main global currency. It’s accepted in countless countries throughout the world and is often used as the currency of choice in cross-border business. According to the International Monetary Fund, it’s also the most popular with around 60% of foreign reserves in central banks.
Next up is the euro, a currency that’s used in most countries in the European Union and some candidate countries like Albania, Kosovo, and North Macedonia. Some 341 million people use the Euro on a daily basis and it’s one of the most popular currencies for trading.
In third position is the Japanese yen, which is the third most traded currency in the world. It’s also considered a third reserve currency after the US dollar and euro. The British pound sterling is also a leader in the financial sector. While it’s only used in the UK, it’s the oldest currency in the world in terms of continuous use and the fourth most traded global currency.
Considering that these are the top four currencies in the world, any pair of these is generally important. Specifically, that means any pair including the dollar, the GBP/EUR, and the EUR/YEN.
In the world of finance and trading, everything is intertwined. Even if you’re not interested in trading stocks, you need to understand how their performance can impact the forex pairs you are interested in.