12.27.07
What Is Forex?
The purpose of trading on any market is to buy low and sell high. The foreign currency market (FOREX) is no exception either. The goods traded on this market are rates of currencies of different countries. As any other goods the currencies have their prices. It may fluctuated up and down within time because of either speculation, news and other business progress.
To settle transactions between businesses located in different countries, governments, speculative transactions and so forth, banks around the world execute currency trades on FOREX market. Internet makes the communication and data transfer easily for the trade. Depending on various trade, economical and other parameters, interest rates, central bank policies, time of the day, preferences and anticipations of the market players, and many other causes, the rates, that is prices, of currencies stay in ceaseless motion.
Your task as a trader is to determine the trend of the rate and buy an appreciating currency or sell a depreciating one, and then take your profits through execution of a reverse transaction. The emotion should be always set aside even though you are eager enough to trade and make profits.
Each currency is assigned an international accredited three-letter code. For example, US dollar is coded - USD (United States Dollar), euro is coded EUR (EURo), Swiss frank is coded CHF (Confederation Helvetica Franc), Japanese yen is coded JPY (JaPanese Yen), British pound is coded GBP (Great British Pound). Currency rates are equal to ratios of currency units of different countries relative to each other. The rates are represented by 6-letter words composed of two three-letter currency codes. The first position is occupied, as a rule, by the code of a more expensive currency. The rates are expressed in units of the second currency per unit of the first one. For example, rates USDCHF (USD-CHF) show the number of Swiss franks in one US dollar, but rates GBPUSD (GBP-USD) show the number of US dollars having to be paid for one British pound.
The rates are usually expressed as five-digit numbers. For example, USDJPY = 121.44 means that 1 US dollar is valued at 121.44 Japanese yens (i.e. they are willing to pay you that many yens for one US dollar while you are buying or selling). At the same time, GBPUSD = 1.6262 means that 1 British pound is valued at 1.6262 US dollars. Generally, if the rate XXXYYY = Z, it means that one unit of XXX is worth Z units of YYY.
When the rate has changed, for example USDJPY = 121.44 to USDJPY = 121.45 or GBPUSD = 1.6262 to 1.6263, they say that the rate has moved 1 point. As it follows from the information above, yen in this example has DEPRECIATED by 1 point, but the pound has APPRECIATED, also by 1 point.
