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Stuff You Need to Know about Foreign Exchange

If you have ever holidayed in a country with a different currency you will be familiar with exchange rates and the effect they can have on your purchasing power. Most of us ‘shop around’ to find the best rates for buying and then potentially selling back our currencies. If our domestic currency is strong our ability to spend is increased and our holiday is much improved. Forex trading is the act of buying and selling currencies against ‘each other’ in order to make money on the price fluctuations.

Foreign exchange marketThose who thought currency trading was the reserve of the big traders like Deutsche Bank or Goldman Sachs may be surprised to discover the general accessibility of the market to the casual speculator. Online forex has thrust the average man into the currency trading business and can offer decent returns with the right investments.

Most online forex sites will offer excellent practice facilities by which you can learn the ropes and begin to trade in theory. You will mainly be trading with the Majors – these are the highest trading currencies with often the most predictable outcomes. The US Dollar is obviously the biggest player and will often form the base currency.

For example, if we take the major pairing of USD /GBP:  the currency on the right is always the ‘base currency’ and the currency on the left is the ‘counter currency’. If the counter currency goes up, it means the base currency has strengthened. The base currency is always a value of 1 unit.

You are always presented with two prices, the ‘Bid’ and the ‘Ask’. The ‘bid’ is the price you can sell the base for, the ‘ask’ is the price you can buy the base for. Prices vary by ‘Pips’. For example if a currency fluctuates from 1.5001 to 1.5002 it has risen by 1 pip. A pip is always the fourth decimal digit of the price (apart from the Japanese Yen where it is the second).

Online forex sites such as www.onlineforex.com will guide you through the full complexities of the market and the more you know the more you may profit.

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