FOREX, PRINCIPLES OF THE MARKET
forex, fx, finance, currency, economy, credits, loans, investments
He concept of the operational Forex is based in the process of buy a currency and sell it another, and undo the position then to obtain benefits. We can make such operations with any quoted currency in the world.
Here are some examples.
Example 1: we have 1 600 USD, and the GBPUSD exchange rate is 1,6000, which means we buy 1 600 USD 1 000 GBP. Waiting for the GBP to rise against the USD, we carry out the operation. After a while the GBP finally increases to assert 1.6100 USD for 1 GBP. With that kind of change we can sell 1 000 GBP 1 610 USD. We have obtained a profit of USD 10.
Example 2: consider that we have 1 000 GPB and GBPUSD exchange rate is in 1,6000. We sell the GBP per USD 1 600, hoping that the GBP devolves to the USD. After a time the type of change falls to 1.5900, by what we do the operation invest and buy GBP by value of 1 600. As a result of the operation have 1 006.28 GBP, earning a profit of 6.28 GBP.
We can draw different conclusions from these examples:
- we can win both ways: when the currency rises and also when low.
- If a currency goes up the other always low and vice versa.
The main instrument in Forex is the pair of currencies – in the form of relationship between each of them. There are over 100 currency pairs on the market. Some are equipped with greater volume while others just move money. For example the 66% of that volume comes from the big pairs. These pairs are: EURUSD, GBPUSD, USDJPY, USDCHF, AUDUSD, and USDCAD. You’ve probably noticed that each pair contains the USD. This is because the dollar is the reserve currency around the world and is very present in the operations of foreign currency. Indeed them pairs that not contain to the USD is called pairs cross, since its price of reference is calculated with the help of the USD. For example the price of the EURJPY pair is calculated as to USDJPY EURUSD.
The badge that appears in first place is the currency base. All the operations are performed on the currency base. For example, in the case of the EURUSD, we can buy or sell EUR from USD we have in our account. If we have the account in another currency, as in the GBP, to complete the operation is automatic currency conversion so that the operator does not have to worry about anything. The entire process is automated.
The currency in the second place is the so-called currency quoted. In this expression is estimated its value as a function of the base currency. If the crossroads EURUSD = 1.4000, this means that 1 euro we can buy 1.4 USD. The second badge shows the result of the ratio between the two currencies, in what is called quote.
In the classic version quote has a price of four format decimales.* change quote minimum is of the last digit and is called basic point or pip. For example the change EURUSD passes from 1.4000 to 1.4001. This means that the currency, the crossing, increases 1 pip. However only the classical accounts have 4 digits. ECN and NDD accounts have a 5 decimal point * that allows to control even more limited changes.