Things to know to deal with foreign currency exchange
Website design By BotEap.comThe main objective of the foreign exchange market is to make money, but it is different from other stock markets. There are several technical terminologies and strategies that a trader must know to deal with foreign exchange. This article will give you an idea of the normal operations in the foreign exchange market.
Website design By BotEap.comIn the Foreign Exchange market, the merchandise that is traded is foreign currency. These foreign currencies are always priced in pairs. The value of a unit of foreign currency is always expressed in terms of another foreign currency. Thus, all operations incorporate the purchase and sale of two currencies at the same time. You have to buy a coin only when you expect the value of that coin to increase in the future. When it increases in value, you have to buy the coins you have bought to make a profit. When you buy or sell a currency, the trade is called an open trade or open position and can only be closed when you buy or sell an equivalent amount of currency.
Website design By BotEap.comYou also need to understand how currencies are traded on the foreign exchange market. They are always quoted in pairs like USD/JPY. The first currency is the base currency and the second is the quote currency. The value of the quote depends on the currency conversion rates between the two currencies under consideration. Mainly, the USD will be used as the base currency, but sometimes the Euro and the British Pound are also used.
Website design By BotEap.comThe broker’s profit depends on the offer and sale price. The bid is the price the broker is willing to pay to buy the base currency in exchange for the quote currency. The ask is the price that the broker is willing to sell in the base currency in order to change the quote currency. The difference between these two prices is called the margin which determines the profit or loss of the trade.
Website design By BotEap.comBid and ask prices are quoted in five figures. The spread is measured in pip, which is defined as the smallest change in price based on the current conversion rates of the currencies under consideration. For USD/JPY, if the bid price is 136.50 and the ask price is 136.55, then the spread is 5 pips and you must take back all 5 pips of your profit.
Website design By BotEap.comMargin used in foreign currency exchange terminology refers to the deposit that a trader makes into their account to cover any expected losses in the future. Brokers provide a high degree of leverage to traders for currency exchange. The ratio is 100:1 normally. The brokerage system will calculate the funds required for the current trade and check the availability of margin before executing any trade.
Website design By BotEap.comYou must understand the characteristics of the foreign exchange market before investing your money. This market is extremely liquid and always live, giving you ample opportunities to profit. Since there is so much potential to win, there is also the potential for big losses. You have to spend your time and effort and watch the market and trade at the right time to make a profit.