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Monday, 30 July 2007 |
The 24/7 Market
Forex (Foreign Exchange Market) is an open market where money is bought and sold freely throughout the day. Participants of the market determine the price of a currency against another based upon their buying and selling habits, or supply vs. demand. However, in order to exert influence over a price, the trader would need to trade over billions of dollars. Therefore, traders cannot manipulate the market for their own gain. So don't worry.
Three Letter Identification
Each Currency is paired with a 3-letter identification system. Some examples are the USD (U.S. Dollar), EUR (Euro), CAD (Canadian Dollar), GBP (British Pound), etc. Currency rates are equal to the ratios between between a currency pair. GBPUSD shows the number of US Dollars to pay for one British Pound.
Reading Quotes
If the GBPUSD is listed as 1.4229, this means that one British Pound is valued at 1.4229 US Dollars. 124.4431 USDJPY means that 1 US Dollar is worth 124.4431 Japanese Yens.
Making the Big Move
As a participant in the Forex market, you will enter as either a buyer or seller. Sellers attempt to sell at a higher price. This leads to a bid and ask price. The bid is what the buyer ultimately wants the order to be filled at. The ask price is what the seller wants to fulfill the order at. All of this may seem very familiar to buying or selling options, stocks, commodities etc.
So what really is the arduous task when trading Forex? It is like a new system that you must learn before you begin to trade. You must know what the GBP is, what currency pair you want to trade it with, and what causes it to fluctuate in price. Similar to commodiities, forex are affected by seasonals. Check out our inverse and covariant strategies to learn to trade based upon the spreads between certain commodity and currency pairs. All in all, learn the trends, then the trading isn't anything different from stocks or commodities.
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