A means of winning great profits. Forex is the trading of one currency against another. Pros refer to this as foreign exchange, but might also use the acronyms Foreign exchange or FX. Forex is necessary in numerous circumstances. Clients usually come into contact with forex when they travel. They go to a bank or foreign exchange bureau to convert their "home currency into, the currency of the country they intend to travel to. They might also purchase goods in a foreign land or via the Web with their credit card, in which case they are going to find the amount they paid in the foreign currency will have been converted to their home currency on their credit card statement.
Although each such currency exchange is a comparatively little exchange, the total of all such transactions is significant. Businesses often have to convert currencies when they conduct business outside their home country. They export in goods to another country and receive payment in the currency of that foreign country, then the payment must regularly be converted back to the home currency. Similarly, if they have to import products or services, then businesses will most likely have to pay in a foreign currency, requiring them to first convert their home currency into the foreign currency. Big firms convert massive amounts of currency annually.
The timing of when they convert can have a large affect on their balance sheet and bottom line.Investors and stockholders need forex whenever they trade in any foreign investment, be that shares, bonds, bank deposits, or real-estate. Investors and speculators also trade currencies at once to benefit from movements in the forex markets. Commercial and Investment Banks trade currencies as a service for their commercial banking, deposit and lending consumers. These institutions also often take part in the currency market for hedging and exclusive trading purposes. Govts and central banking organizations trade currencies to boost trading conditions or to interrupt in an attempt to adjust industrial or finance disequilibria. Although they don't trade for speculative reasons â€"- they are a charity â€"- they regularly tend to be profitable, since they sometimes trade on a long-term basis.
Foreign exchange rates are set by the currency exchange market.A currency exchange rate is often given as a pair composed of a bid price and an ask price. The ask price applies when buying a currency pair and represents what must be paid in the quote currency to get one unit of the base currency. The bid price applies when selling and represents what's going to be obtained in the quote currency when selling one unit of the base currency. The bid price is always lower than the ask price. Purchasing the currency pair implies purchasing the 1st, base currency and selling (short) an equivalent amount of the second, quote currency (to pay for the base currency). (It's not required for the trader to own the quote currency prior to selling, as it is sold short.) A speculator gets a currency pair, if she thinks the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up. Selling the currency pair implies selling the first, base currency (short), and buying the second, quote currency.
An investor sells a currency pair, if she thinks the base currency will go down relative to the quote currency, or equivalently, the quote currency will go up relative to the base currency. After buying a currency pair, the trader will have an open position in the currency pair. Right after such an exchange, the value of the position will be close to zero, because the value of the base currency is more or less equivalent to the value of the equivalent amount of the quote currency. In reality the price will be slightly negative, thanks to the spread concerned.
Although each such currency exchange is a comparatively little exchange, the total of all such transactions is significant. Businesses often have to convert currencies when they conduct business outside their home country. They export in goods to another country and receive payment in the currency of that foreign country, then the payment must regularly be converted back to the home currency. Similarly, if they have to import products or services, then businesses will most likely have to pay in a foreign currency, requiring them to first convert their home currency into the foreign currency. Big firms convert massive amounts of currency annually.
The timing of when they convert can have a large affect on their balance sheet and bottom line.Investors and stockholders need forex whenever they trade in any foreign investment, be that shares, bonds, bank deposits, or real-estate. Investors and speculators also trade currencies at once to benefit from movements in the forex markets. Commercial and Investment Banks trade currencies as a service for their commercial banking, deposit and lending consumers. These institutions also often take part in the currency market for hedging and exclusive trading purposes. Govts and central banking organizations trade currencies to boost trading conditions or to interrupt in an attempt to adjust industrial or finance disequilibria. Although they don't trade for speculative reasons â€"- they are a charity â€"- they regularly tend to be profitable, since they sometimes trade on a long-term basis.
Foreign exchange rates are set by the currency exchange market.A currency exchange rate is often given as a pair composed of a bid price and an ask price. The ask price applies when buying a currency pair and represents what must be paid in the quote currency to get one unit of the base currency. The bid price applies when selling and represents what's going to be obtained in the quote currency when selling one unit of the base currency. The bid price is always lower than the ask price. Purchasing the currency pair implies purchasing the 1st, base currency and selling (short) an equivalent amount of the second, quote currency (to pay for the base currency). (It's not required for the trader to own the quote currency prior to selling, as it is sold short.) A speculator gets a currency pair, if she thinks the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up. Selling the currency pair implies selling the first, base currency (short), and buying the second, quote currency.
An investor sells a currency pair, if she thinks the base currency will go down relative to the quote currency, or equivalently, the quote currency will go up relative to the base currency. After buying a currency pair, the trader will have an open position in the currency pair. Right after such an exchange, the value of the position will be close to zero, because the value of the base currency is more or less equivalent to the value of the equivalent amount of the quote currency. In reality the price will be slightly negative, thanks to the spread concerned.
About the Author:
Todd Watson trades in Forex, tests Binary Option strategy and is always hunting for the next best Forex Robot.
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