subject: Foreign Exchange Trading [print this page] Seasoned brokers have no problem gaining profit from the foreign exchange market because they already know the mechanics of such trade. However, even a newcomer can also get involved in foreign exchange trading and benefit from it. Foreign exchange trading is easy enough if one knows the basics.
Foreign exchange trading is the practice of selling and buying currencies. The goal of foreign exchange trading is to exchange one currency for another currency in hopes that the price will change, so that the currency purchased by a trader will increase in value compared to the currency sold.
Before anyone can participate in foreign exchange trading, one must know about the exchange rate and the foreign exchange quote. The exchange rate is basically the ratio of one currency valued against another currency. For instance, the CHF/USD exchange rate shows how many Swiss francs can purchase a U.S. Dollar, or how many U.S. Dollars one needs to purchase a Swiss franc. In foreign exchange trading, currencies are always quoted in pairs. An example is the one shown above: CHF/USD. Currencies are quoted in pairs because every transaction in foreign exchange trading involves the simultaneous buying of one currency and the selling of another currency. Here is an example of a foreign exchange rate for the Euro versus the U.S. Dollar:
EUR/USD = 1.18
The first listed currency, or the one in the left side of the slash (/), is called the base currency. In this case, the base currency is the Euro. The second listed currency in the right side of the slash, such as the U.S. Dollar, is the counter or quote currency. The base currency is always the basis for the buy or the sell. In the example, it means that one is buying the Euro and simultaneously selling the U.S. Dollar.
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by: AlexK
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