The Basics Of Foreign Exchange

By: Nitiwat Sanornoi

Foreign exchange is one of the most profitable marketplaces to invest in as it deals with trillions of dollars everyday. Though many people are of the opinion that earning money in foreign exchange market is a child's play, it is not! It actually depends on your knowledge about the ins and outs of the market along with your observation regarding the changing trends that decide your success in foreign exchange transactions. It is important to keep in mind the specificity of market when dealing with foreign exchange. Central banks, large banks, multinational corporations, currency speculators, financial markets, governments, corporation and other such institutions are all involved in foreign exchange trade.

Retail traders make a small fraction of the foreign exchange market and participate indirectly with the help of banks or brokers. The average trade in the global foreign exchange market made daily is more than US$ 3 trillion. No commission is charged as such according to a particular transaction; conversely the profit is earned because of the speculation that occurs due to the difference in amount among the two varied currencies. This difference of prices among the two currencies is known as spread. The rates of all these currencies are inconstant and their prices keep on varying depending upon several factors like currency rate differentials, economic events, political events, terrorism acts, and weather conditions of different countries.

Initiating and making transactions in foreign exchange market is quite an easy task, provided you know the repercussions of the transactions you are making. There is mainly a single currency pair to quote the currencies such as EUR/USD. While the first currency is the base currency, the other currency is called as the counter currency. It would prove to be beneficial to purchase this pair of currency when you know that the prices for euros (base currency) are anticipated to soar higher than those of the US dollars (counter currency). Buying and selling are the two sides that every transaction has. In other words, it is unfeasible to make the purchase transaction of a currency pair like EUR/USD and further exchange it with another pair of currency say EUR/JPY without closing the first transaction.

Introduction of the Internet has been a great comfort in making foreign exchange dealings at the comfort of your home. However, it is better to make sure that the site where you are making for foreign exchange transactions is accredited so as to ensure the safety of the money being transferred and invested.

There is also a lot of information on the websites that you can go through to make sure that you are proceedings the right way and what are the precautions and essential points to get started in foreign exchange dealing. It is also better to have some knowledge about the timings of foreign exchange along with holidays. Learning from others helps a lot. In fact, in the present scenario, there are many courses that have been introduced that teach the basics of foreign exchange market and how to make transactions to make maximum profit possible.

Foreign Exchange
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