Currency trading is the buying and selling of currencies from around the world. It is the largest and most active trade happening, making trillions of dollars daily. Unlike other trade like stock exchange, currency trading has no specific time of trading. It happens 24 hours a day, 7 days a week.
Currencies
In currency trading, there are currency pairs. A currency pair consists of two currencies, one of which is being bought and the other is the currency used to buy the other currency.
Take a look at this example: GBP/USD where GBP is the British Pound. The GBP is what we call the ‘base currency’ which has the initial value of 1. This is the currency being bought. Next is the USD or the US dollar. This is what we call the ‘quote-currency’ and has the value of how much one of the base currency is worth. For example: EUR/USD 1.2436, one Euro is worth 1.2436 US dollars. If you need 1000 Euro, you’d have to exchange it for 1243.6 US dollars.
Other major currencies traded are Canadian dollar (CAD), Japanese Yen (JPY), Australian dollar (AUD, and the Swiss Franc (CHF).
The Spread
In currency trading, a currency pair has a corresponding ‘bid’ and ‘ask’ price. The ‘bid’ price is how much the base currency is being sold by the currency broker while the ‘ask’ price is how much the currency is being bought by the trader. The bid price is usually lower than the ask price and this is where sales are made by the brokers. The difference between the ‘bid’ and ‘ask’ price is called the ‘spread’.
Changes in the Currency Values
Knowing how currency values changes is important in currency trading. In a nutshell, buy a currency when its value is low and sell it when its value is high. The changes in currency values depend on political and economic events. Foreigners going in a country triggers currency exchange as well as large purchases of commodity from one country to another. Also, we should not forget the influence of speculators in currency trading. They speculate on the increase or decrease of value of a currency therefore will make decisions in advance. It is important to be
About the Author:
By: Jeff Daniels
For more information about Currency Trading Guide, visit www.yourtradingzone.com/currency-trading
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