Currency Trading For Dummies Guides and Terms
The trading of currency is referred to as Forex. In essence it is a cash market where investors can speculate on changes in foreign currencies or the exchange rates of them. Here some currency trading for dummies guides:
No Physical Exchange
Because it has no structured physical exchange per se, it basically operates on a 24-hour basis since there are markets throughout the world, such as Tokyo, Great Britain, New York and such. Because these are not physically close to each other, when one market opens, such as the US, another is closing elsewhere, but still there is currency trading taking place. Thus currency trading for dummies stresses that because it is an ongoing exchange of currency there are constant changes that you will need to be aware of.
How It Operates
You should know, for example, that the Forex market is considered an over the counter market. Forex dealers and large banks are interconnected via the phone, fax and of course the internet, and that is the actual “market” as it were. Prior to 1971 the foreign currency market was traded only through large banks in large chunks. Forex now functions quite differently.
Composition
It is now comprised of hedge fund holders, long-term holders, day traders, large multinational corporations, international portfolio managers as well as exporters and importers, all of which can use this Forex market to pay for services as well as goods, and make transactions that involve hedging with regard to currency movements. As you can see Forex is important to the entire world of business. You will also learn that as a day trader, you do not need large sums of money to invest in Forex. This makes the Forex market entirely different than dealing in stocks and bonds.
Advantages
Trading in Forex will give you many advantages. If you wish to learn about currency trading for dummies, you should know that one of the tremendous advantages to the Forex market is that it is extremely liquid. You can always quickly sell or buy any particular currency, and Forex has one of the largest trading volumes available. Because global developments influence the currency trading of Forex, this means that its movements are often predictable, thus this is how money is made.
Also, you will learn that Forex does not have broker’s commissions associated with it; instead brokers make their money on the spread. Interestingly enough too, there need not be a huge capital outlay when dealing with Forex. Finally, one of the most important facts about currency trading for dummies is that many investors make their living in front of their computer performing currency trading.
With currency trading for dummies, you should understand that if you’ve dealt with buying stock before, and been totally bewildered by such terms as uptick rules, and the restricted inaccessibility of stocks and bonds, you would find that dealing with currency trading is much simpler by virtue of the fact that it is so accessible and thus liquid.
PIPs
When dealing with currency trading for dummies, you should know that Percentage In Point, or PIP is how money is made, and this is because money is quoted in mathematics that goes to the fourth decimal point, or 1/100th of 1%. Understanding the dynamic of currency trading is important. When you see a quote of EUR/USD what is actually happening is that Euros are being traded for United States dollars. This would be referred to as short euro and long dollars.
Alternative Terms
Of interest to currency trading for dummies, are the cute little nicknames and alternative terms earned by different currencies. For instance, the US dollar may be referred to as a buck or a greenback, the alternative for the British pound is cable or sterling, the Swiss franc the swissie, the Canadian dollar is called the loonie, and the kiwi is the alternative name for the New Zealand dollar.
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