Foreign Exchange
Every country of the world has their own currency and when one travels from one country to another country they need to have the currency of that country so that they have money to spend over there. Money can be exchanged at banks, hotels or at money changers but what determines how much one will get in the exchange. The rates of exchange are advertised by the place that one goes to get their money changed. These exchange rates are determined by the foreign exchange money market. Foreign exchange trading takes place 24 hours a day as when it stops in one country another country has just woken up. There is no formal exchange or floor on which this trading is done it is all dependent on the telecommunication system. Previously telephones and telex machines were used by the foreign exchange traders and then faxes. Now the internet has taken over the business. The worth of a currency is linked with the health of the economy of the country and is linked with the price of precious metals like gold and silver but most commonly it is linked with the price of gold. The currencies of developed countries are also referred to as ‘hard currencies’ and the most common ones are US dollar, Euro, Pound, Swiss Franc and Japanese Yen. Most of the currencies of the other countries are linked with these currencies. A number of under developed countries buy and keep these ‘hard currencies’ in their country’s bank and count them as reserves.
Foreign exchange trading is the single largest financial market of the world and its trading is not limited to any country or exchange it is freely traded in all corners of the globe. This may sound a bit awkward that there is no trading house and the trade is carried out over the phone or the internet. Foreign exchange trading is based on trust entirely and foreign exchange dealers and traders have their own set of rules. One cannot be charged of leaking any secrets as there is no unfair practice in it. In foreign exchange trading there are always two currencies that are paired like USD/EUR (US Dollar/Euro), GBP/USD (British Pound/US Dollar). This indicates the exchange price of the currency. Like how many US Dollars are equal to a Euro. Foreign exchange trading rates are quoted with 4 decimal places, like $1.20 would be quoted as 1.2000. A number of forex traders also indulge in forex scalping which is a way of doing fast trading on the internet. They look at the change in points that is if the exchange rate changes by .0005 points they will do a sale or purchase. As the fourth decimal is referred to as a ‘pip’ in the language of foreign exchange traders and they play on buying and selling based on the change in the pip.
If one wants to learn foreign exchange trading there are several practice software packages that one can download from the net and try their hands at without actually burning their fingers. One has to be an expert in foreign exchange trading and know it thoroughly before one can get into it. There are foreign exchange brokers that one has to use to do foreign exchange trading and their payment method differs from that of the traditional stock exchange brokers.
Should one want to learn the forex trading system one can get forex trading software and forex training material from the internet? One can also watch the free forex charts and learn various forex trading strategies. One can do all this without actually having to purchase or trade any currency.
