Forex Investment – Key Points To Know About
The Forex trading market or foreign exchange market is the round-the-clock cash market where the foreign currencies are sold and purchased. Trading on the Forex market is always done in currency pairs. For instant, you purchase American dollar paying with the Euro or you sell Japanese yen for Canadian dollar. The total value of the Forex investment traditionally reduces or increases due to changes in the currency exchange rate or so-called Forex rate. As a rule, these changes could happen at any time and often are results of some political or economic events. Utilizing a hypothetical Forex investment, from this article you will know how to calculate both losses and profits in the Forex trading.
To better understand how the exchange rate could affect the value of the Forex investment, first of all, you have to learn how to read Forex quote correctly. Traditionally Forex quotes are expressed in pairs and in five-digit numbers. For instant, you have the following pair of currencies – American dollar and Japanese yen. The Forex quote, USD/JPY = 20, means that one American dollar is equal to 20 Japanese yens. The foreign currency to the left of the ‘/’ (in our example American dollar) is referred to as base foreign currency and its value is always 1. The foreign currency to the right (in our example Japanese yen) is referred to as the counter currency. In our example, one American dollar could purchase 20 Japanese yen as it is stronger of the two foreign currencies. The American dollar is considered as the main currency for the Forex trading market and it is always treated as the base currency in the Forex quote where it is one of the pairs.
Now let’s go to out hypothetical Forex investment to show how you can make profit or come up short in the Forex trading. In our example your pair of currencies is the American dollar and Japanese yen. The Forex rate of USD/JPY on January 24 was 5.0864, which means that one American dollar is equal to 5.0864 Japanese yen and was the weaker of the two currencies. If you had bought 1000 Japanese yen, you would have paid $5,086.40.
In some month, the Forex trading rate of USD/JPY was 6.2854, which means that the value of the Japanese yen increased in relation to the American dollar. If you had sold 1000 Japanese yen several months later, you would have received $6,285.40 which is $1199 more than what you had started with several months earlier.
As well as in the stock trading market, on the Forex market there is a risk involved in trades as well. The risk results from instability of the currency exchange market. As a rule, investments with the low level of risk have low returns as well.
It is very vital to understand that forex trading is not a casino, no matter how close to this it looks.
Hence, people who start buying and selling on the foreign currency exchange market, are making a big mistake.
And this is where a good forex book can be of great help.
Of course, it makes no sense to trying going through all forex book info in the world, but extra knowledge is not an extra.
