Introduction to FOREX |
Unlike stock where most people buy expecting the stock prices to go up in order to make money, with FOREX; crafty traders can make money whether or not the goes up. The idea is to buy one currency when its price is low and sell it for another currency at a higher value, thus making a profit. You can also sell a certain currency for another when its value is high and buy it back when its value is lower than buying price, and still make a profit. FOREX BasicsBasically what you have when you are trading on FOREX is a market that is open 24 hours a day, except most platforms close on Friday afternoons and reopens Sunday afternoons. What you are dealing with is a pair of currencies for example USD/YPN. If you had USD/YPN trading at 1.2850 – Meaning One US dollar is worth $1.2850 Japanese Yen. The first currency is referred to as the base currency and the second as the counter or quote currency. Note that selling USD for YPN will not have the same value as selling YPN for USD, usually the difference between the bid and ask price is called a spread. BID is the price at which you sell the base currency for the counter currency and ASK is the price at which you buy the base currency with counter currency. This whole mechanism is what is called currency quoting or quotes. Forex prices are often so liquid, they're quoted in tiny increments called pips, or "percentage in point". A pip refers to the fourth decimal point out, or 1/100th of 1%. For Japanese yen, pips refer to the second decimal point. This is the only exception among the major currencies. Before you rush to spend your savings in the hope of making a lot of money, do a careful study of what is involved. A lot of people loose money on FOREX and you should never trade with the money that you or your family is depending on, because you will loose it. FOREX is not a playground for the faint-hearted, it requires discipline and careful analysis of the market signals. In the next few postings, we will explore all that is involved in currency trading. Stay tuned! |
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