Forex Basics

Forex Basics

Trading of any form if conducted for monetary gains mean to buy low but sell high. This rule applies to forex trading as well. Forex trading means the trading of currencies of various countries. The currencies are traded in pairs and they have their price and value in comparison to other currencies. Currency prices are continuously in motion as they are subject to change due to many reasons like interest rates, time of the day, economical parameters, policies of the central banks, anticipations and trade practices of the traders involved and several other reasons.

The aim of a forex trader should be to spot a currency, which has an appreciating trend and sell the currency, which follows a depreciating trend, in the near future. To trade forex, a trader needs to open an online account with a broker. The broker’s online platforms give the details of the live exchange rates, which help in making decisions regarding the currencies pairs to be traded. With the ease of trading online, a trader can trade forex from the comfort of his office or home. For those that are new to forex trading, here is a brief guideline depicting the way the trade is carried on:

  • Each country has a currency and these currencies are given a three-letter code. For e.g. the Dollar from the United States is coded as USD, the Euro is coded as EUR, the Singapore Dollar as SGD, the Japanese Yen as JPY, the Indian Rupee as INR, the British Pound as GBP and so on. The forex trading is done in pairs and the first currency of the pair is the one, which has a higher value in relation to the second currency of the pair. Therefore, a forex pair of USD/JPY means the number of Japanese Yen to be paid for one US Dollar.
  • Five digit numbers are used to express the rate of the currency pairs. Therefore, USD/JPY = 122.46 denotes that 122.46 Japanese Yen would be paid for one US Dollar. This rule applies to all currency pairs. If the value of the Japanese Yen moves from 122.46 to 122.48, it means that there is a movement of two points and there is depreciation in the value of the Yen.

Therefore, with this information, a trader new to the world of forex can understand the way the currencies are expressed. For further information related to forex trading, a trader may go through the online tutorials provided by the brokers and several other websites.

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