Forex: an Alternative Investment

Posted under Economy and Finance by admin on mercoledì 27 luglio 2011 at 07:36

The forex or foreign exchange represents the simultaneous exchange of the base currency with the counter currency. The forex market is the fast and the highly competitive financial exchange market of the world that normally operates twenty four hours a day in 5 days of a week. The market is extremely liquid and most of the trading is done via electronic trading networks or telephones.

The market provides a platform where foreign currencies are exchanged and valued with respect to one another and you can download online one of the thousands mobile applications related to forex exchange for your smartphone or mobile device on freapp.com .

Currencies are always exchanged in pairs where one of the currencies is traded for another. The trade basically revolves around 7 major forex currency pairs. The major forex currency pairs of the market are EUR/USD, GBP/USD, USD/JPY, EUR/JPY, USA/CAD, AUD/USD, CHF/USD.

 

Forex traders earn profit by speculating whether the specific foreign currency pair will increase in value in relation to another or not. A trader would suppose to purchase the currency which is on the move, or will sell the forex currency which is looking to loose its value in relation to another foreign currency. Some important and basic terminologies of the forex exchange market are as follows:

  • Spot Market

The spot market is the market where currencies are traded at the existent market rate.

  • Currency Pairs

In forex exchange market, there are basically two currencies, Base and the Counter currency, that form an exchange rate when one of them is bought or sold. The first currency in the currency pair is the Base forex currency and the second currency is known as term or counter currency.

  • Forex ECN Brokers

A forex Ecn Broker provides a platform or a marketplace to multiple market makers, traders, banks and individual investors so that they can execute their trades in a secure and anonymous environment. Your trades will be conducted on behalf of your ECN forex broker, thereby supplying you with complete security and anonymity.

  • Bid Price / Sell Quote

The bid price or sell quote is the price at which you will trade the base currency. For instance, if the USD/EUR quotes 1.3211, it means that you can sell 1 USD at the sell quote or bid price of EUR $1.3211.

  • Offer Price/ Buy Quote

The buy quote or offer price is the real price at which you will actually purchase the base currency. The offer price is also known as market maker’s ask price.

  • Spread

Spread is the difference between the bid or the offer price. For instance, if USD/EUR quotes read as 1.3522/03 then the net difference between the bid and the ask price is 3 pips.

  • PIP

It is in fact the smallest increase in the value of a currency and it is also referred as points.

  • PIP Value

The value of the PIP highly depends upon the currency pair. The pip value can either be static or variable.

  • Margin

The deposit or the minimum credit that a trader needs to maintain or open a position in live forex trading is known as margin. There are generally two types of margin, the “free” or the “used”. Used margin is actually an amount or credit which is used to maintain a trading position of the trader whereas; the free margin is the credit or the amount which is available to open new trading position.