Understanding Forex Trading

Understanding Forex trading begins with a quick definition of Forex trading. Forex is an abbreviation for ‘foreign exchange’ the market where currencies are bought and sold. The Forex market is a 24 hour a day market with no central location or facilities. Transactions are typically conducted through a system of electronic trading platforms giving access to anyone with a computer.

Currencies rise or fall in value due to variations in currency exchange rates. These changes are affected by many variables such as political or economic events such as oil prices or more recently the mortgage market. These events can bring about profound changes in Forex markets worldwide.

Understanding Forex Quotes

Forex quotes are always made in currency pairs such as UDS/EUR (Euro vs. US dollar) or GBP/USD (British Pound vs. US dollar. The US dollar is the dominant currency in the Forex market and is treated as the base currency in Forex quotes. For example a Forex quote might read USD/JPY (Japanese Yen) it means that for every 1 US Dollar, you get 1.30 Japanese Yen. When you quote for AUD/JPY of 67.73, it says that for every 1 Australian Dollar, you get 67.73 Japanese Yen..

Forex Currency Pairs

In a Forex quote the first currency is the base currency and the second currency is the counter or quote currency. The most commonly traded pairs are;

US Dollar and the Japanese Yen (USD/JPY)
Euro and US Dollar (EUR/USD)
US Dollar and Swiss franc (USD/CHF)
British Pound and US Dollar (GBP/USD)

Pairs are traded and quoted in ‘bid’ and ‘ask’ price. The ‘bid is the price at which the investor is willing to buy and the ‘ask’ is the price at which the investor is willing to sell. Using the UDS/EUR as examples, if the pair is quoted USD/EUR=1.5 and purchased this means that for every 1.5 euros that you sell, you get US$1. If you sold the currency pair, you receive 1.5 euros for every US$1 you sell.

Forex Trading Opportunities

Common wisdom holds that new Forex investors should only trade in one or two currency pairs until a firm grasp of the Forex market is achieved. Obviously the goal of Forex trading is to profit from currency movements. This requires training, education, research, patience, and discipline. Training is readily available online covering all aspects of Forex trading. It is highly recommended that novice investors utilize these readily available learning tools. There are many websites where experienced Forex Traders share their insight ,experience , and predictions.