Understanding the basics of forex trading

Understanding the basics of forex trading: currency pairs

The foreign exchange market, or Forex (FX) for short, is said to be the oldest international trading market. It is also the largest of all trading markets. Analysts estimate that the average annual volume of foreign exchange rate to be over a trillion dollars. The Forex exchange is not centralized in any one place, and trading him is taking place 24 hours a day, seven days a week without a break.

Trading in this market, you need to understand what is traded. Forex trading deals with world currencies. Trader buys and sells currencies by exchanging one form of money for another, in order to make profit from the transaction. The market exchange rate quotations indicate pairs of currencies. They are represented by showing the base currency followed by different currencies, eg USD / EUR or GBP / USD.

The most commonly traded currency pairs exchange rate are considered:

EUR / USD: Euro vs. U. S. dollars

GBP / USD: British Pound vs. U. S. dollars

USD / JPY: U. S. Dollar vs. Japanese Yen

USD / CHF: U. S. dollar against Swiss franc

Here is how to interpret the typical conversion rate quote. The currency is shown the first is generally referred to as base currency, but it is known by other terms as well. It can be called domestic currency or accounting currency, and even be called as the primary currency exchange rate currency pair. The currency is shown in second place is called the counter or quote currency. Base currency is always equal to one monetary unit of exchange (eg, 1 USD, 1 EUR, 1 GBP). It is generally understood and are not shown. The quote currency is the amount of such currency that is able to buy one unit of base currency. Forex currency pairs normally reflect what is called the "bid" and "seeking" cost. The bid price refers to the price at which the broker is willing to buy, while the price asked concerning the price at which the broker is willing to sell.

Let's look at a sample listing. Consider the USD / EUR currency pair is quoted as USD / EUR = 1.8. If you buy this currency pair, will get $ 1 for each € 1,8 to sell. If you sell this currency pair, you will earn 1,5 € for every $ 1 you sell.


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