As the largest, busiest and most liquid trading and investment platform in the world, the forex market is sensitive to geopolitical events. Some forex traders prefer to take positions according to technical analysis while others stick with fundamentals, but both will take into account global news headlines, particularly as they apply to the economic and monetary policy.

News about tax cuts and other policy moves that can impact sovereign revenue will certainly have an effect on the forex market, but it is important to understand the context of the reports. When tax cuts are enacted by major economies, there should be an understanding that treasury revenue will decrease, and this could either be interpreted as good or bad news for the economy. Before getting into the details of national revenue, tax cuts and their effect on the forex market, it is crucial to understand how headlines and reports by analysts work.

Forex is an abbreviation for the foreign exchange market, also known as FX. On the foreign exchange market, people trade in currencies such as USD, CAD, EUR and many others.

What is Forex Trading?

A forex trade involves the simultaneous purchase of a quantity of one currency along with the sale of a quantity of another type of currency. So, for example, a trader might buy USD and sell CAD.

Forex traders attempt to profit off of the future changes in the relative value of various currencies, both in the short term and the long term.

The foreign exchange market, which is a decentralized platform is used all over the world in order to carry out currency trades. Usually, the international banks are involved in such transactions. These transactions or currency trades are intermediated by financial institutions, also known as banking institutions.

Types Of Banking Institutions:

There are three basic types of banking institutions that intermediate financial trades. These 3 types of institutions are as follows:

  • Depository- These banking institutions take or accept deposits from different agencies and other personnel. The task of managing these deposits is also performed by these depository institutions. Credit unions, mortgage loan companies, trust companies and other banks make deposits into these institutions. These institutions also make important loans.
  • Investment Institutions– These are banking institutions that make the required investments. They are usually well aware of the market statistics and carry out effective risk analysis. Investment banks and brokerage firms are common examples.
  • Contractual Institutions– These institutions are in charge of pensions, insurances and other related funds.

A way of winning huge profits

Currency exchange is the trading of one currency against another. Professionals refer to this as foreign exchange, but may also use the acronyms Forex or FX.

Currency exchange is necessary in numerous circumstances. Consumers typically come into contact with currency exchange when they travel. They go to a bank or currency exchange bureau to convert their “home currency into , the currency of the country they intend to travel to.
They may also purchase goods in a foreign country or via the Internet with their credit card, in which case they will find that the amount they paid in the foreign currency will have been converted to their home currency on their credit card statement.