Market and Investment

The simultaneous process of buying of one currency and selling of another currency is carried out by the Foreign Exchange Traders, which demands Forex Quotes for such Currency pairs. One of the currencies, written on the left hand side, is called the base (or transaction) currency. The one written on the right hand side is called the Quote (or the counter) currency. An example can be cited in this regard. In the currency pair EUR/USD, the EUR forms the base currency and the USD forms the Quote Currency.

A five digit number is allotted as the price of the currency pair, having four digits to the right of the decimal point. A trader can opt for two kinds of positions, a short position or a long position. The difference lies in the fact that in case of sudden price rise of a particular currency price, the traders position, which is a long position (buying the 1st currency against the 2nd one), will appreciate, while the traders position, which is a short position (selling the 1st currency against the 2nd currency), depreciates for the same rise in currency pair price.

The price movements shown by the Exchange Rate in the Forex Trading are measured by the Percentage In Point (pip). Generally all the pairs show a pip equal to 0.0001. But the USD/JPY shows and exceptional pip equal to 0.01.

The price at which a Broker is ready to sell a currency pair is the same as the price at which the Trader is ready to pay for the same, is called the ask price. The bid price is the one for which the Broker will buy and the Trader will sell the currency pair.

When the Bid price is subtracted from the Ask price, the result obtained is called a Spread. The pip is used to express a spread. When the USD or EUR is not included in the currency pair it forms a Cross Rate. Euro Crosses are pairs that include Euro Crosses.

Any kind of transaction demands a deposit to be kept by the Trader. The ratio of the contract value to the deposit is known as Leverage. The prerequisite of the opening of a position is an initial investment, Margin, which covers the credit risk that a broker is vulnerable to. The percentage margin requirement can be calculated as the inverse of Leverage value.

The most traded and liquid currency pairs are called Majors. Any kind of transaction, involving Majors, account for 90% of the total Forex trading. The EUR/USD and USD/JPY are the most important currency pairs that are actively traded. The GBP/USD rank third, whereas EUR/JPY rank fourth.

It is to be borne in mind that the Forex trading involves a high level of substantial risk to the capital. As a result of this, you might end up losing on more money than the amount you had invested. You are then advised to go