- A market where participants buy, sell, and exchange currencies
- Is the largest market in the world
- Currency trading involves the exchange of the value of money in one country against the value of money in another country
- FXs are conducted OTC (Over The Counter) and not on an actual exchange
All currencies are quoted in pairs:
EUR is known as the BASE currency (the currency you want to buy or sell) and USD is known as the quote currency (The price you pay to buy one unit of the base currency
Currencies fall into three categories:
- Major => Most traded (contains USD, GBP, AusDollar, etc..). Currencies are priced to 4 d.p.
Bid/Offer price = basically the rate of exchange
Things that affect an FX:
- Monetary policy
- Political stability
- Interest rates
GOING LONG – Means the holder of the position owns the security and will profit if the price of the security goes up.
GOING SHORT – Is the practise of selling assets, that have been borrowed from a third part (usually a broker) with the intention with the intention of buying identical assets back at a later date to return to the lender. It is basically a form of reverse trading. The seller hopes to profit from a decline in the price of the assets between the sale and the repurchase. BUT the short seller will incur a loss if the price of the asset rises!
Major currencies are: US Dollar, Euro, Japanese Yen, Pound Sterling, Swiss Franc
Forex currencies are ALWAYS quoted as pairs e.g. GBPUSD
First currency is called the BASE currency
Currency pairs are quoted by TWO numbers e.g. 0.990/0.995. The first number is called the BID price the second number is called the ASKING or OFFER price
The difference between the bid and offer price is called the SPREAD