And there is a wealth of information available, either at your local library, bookstore, or online, to bring even the most inexperienced to a certain level of understanding. Have you ever travelled to a foreign country? Which meant you had to find a currency exchange booth at the airport, or visit your local bank, and change your spending money into the currency of the country you were visiting.
When it was your turn to be served you would have been faced with a long list displaying different exchange rates for different currencies. When exchanging one currency for another you are participating in the most basic form of FX trading, via the Forex market. However, the figures can be deceiving. The numbers are actually much smaller when you break it down. Which is still a big number, but not as big as many would have you believe.
There are a lot of different names bandied around, in connection with Forex trading. The FX market, currency market, foreign exchange market, foreign currency market, and plenty more. But they all refer to a form of investment that is undertaken by banks, business, governments, individuals and traders who exchange and speculate on various currencies.
It is open 24 hours a day, 5 days a week. And there are trading centers located in many major cities worldwide. There is no central marketplace, which is the case for stock market trading. Forex prices are quoted by all the major banks, but not all will have exactly the same price. The man on the street, such as you and I, will have to trade via a top Forex broker. And the rates they use will be an average of a number of bank rates.
There are a number of different people, organisations, and top FX brokers who participate in the FX trading market. As with any form of investment there are disadvantages and advantages of participating. As it is important to understand the jargon. The major Forex currency pairs and their nicknames are: The best online Forex brokers quote the exchange rate of two currencies in a pair.
This is because in any Forex trading transaction, one currency is being bought, while another is being sold.
While the second currency, the US Dollar, is the counter or quote currency. If you decide to buy this particular currency pair, it clearly indicates how much of the quote currency USD is required to buy one unit of the base currency EUR. In the above example, 1. If you sell the currency pair, you will receive 1. If you want an easy way to remember the principle think of the base currency as the basis for the trade.
Whether you are buying or selling a currency pair the base currency is always the same. In other words, it is always based on the first currency in the pair. The whole point behind Forex trading, is to buy a currency pair if you consider the base currency will increase in value appreciate , in relation to the quote currency.
If you think the base currency will decrease depreciate in value in relation to the quote currency, then you should choose to sell the pair. Some of you reading this will find this section a little boring. We appreciate that not everyone will want to know about the history. But we consider it an important part of your Forex journey. The foreign exchange market, or Forex, FX, or currency market, as it now often known, refers to a global decentralized market in which currencies are traded.
Under this heading are all aspects of buying, selling, and exchanging different currencies at a current or predetermined price. Currencies have been traded across the globe for centuries, but one of the most important events in the history of the Forex market happened in the s, when the gold standard was introduced. Before its introduction it would generally have been gold and silver that were used for international payment.
The value of these two metals was very much up and down. And were affected by global supply and demand. If a new gold mine was discovered it would drive the price of gold down. The gold standard was introduced so that governments could guarantee the conversion of a currency into a specified amount of gold, and vice versa.
A currencythat would be backed by gold, and should have stabilized world currencies, sounds a pretty good idea in theory. The gold standard was dropped, but gold as a precious metal never lost its importance as a form of monetary value.
Towards the end of World War II, Allied nations found there was a need for a monetary system to fill the void left by the loss of the gold standard.
The reason for the gathering was to iron out the details of a new international monetary system. They decided to call it the Bretton Woods system. The main part of this new system was for the US dollar to replace gold as the standard used for converting world currencies.
It also led to the US dollar being the only world currency backed by gold, at that time. It also created three agencies that would oversee economic activity across the globe.
However, this system suffered a number of problems. These included the US Treasury running low on its gold reserves, and not having enough gold to cover all the US dollars foreign central banks had in their reserves. Bretton Woods came to an end in , when President Richard Nixon closed the gold window and refused to exchange US dollars for gold. And that is the three international agencies that were created and still exist today, albeit in a slightly different form.
Nowadays, currencies are allowed to float freely against one another, which has led to the value of various currencies varying, and in turn this led to the need for foreign exchange services.
The services were provided by commercial and investment banks on behalf of their clients. It has also led to Forex trading being used as a speculative form of investment. The world of Forex offers amazing opportunities for people to make money. However, we should point out that there are also amazing opportunities for people to lose money too. As with any form of investment prices can go down as well as up. There are a number of skills required that will help anybody considering trading Forex online.
There are thousands of people starting their own Forex journey the same as you. Unlike many other kinds of investment market there are a huge amount of free learning tools and resources to help you on your way.
All the best Forex brokers offer free demo accounts, and there are also mentoring services, online tutorials, and heaps of online and printed resources, charts, and signals.
In fact, there is so much to choose from that it can be rather daunting. That is if you want to pick one in an objective and scientific way. When it comes to choosing the best Forex broker for your needs, there is a lot to be said for checking out sites that offer Forex broker comparison.
Time to think about sharing some information on the importance of keeping to your own set of rules, and those that have guided countless successful Forex traders. All of these trading rules are important, and understanding how they work together will help you to develop a viable Forex trading business. Avatrade Read Avatrade Review. Plus Read Plus Review.
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