Questions About Currency Trading

faq-in-forex

What is Forex Trading?

Forex trading or Currency Trading is the trading market globally which is the largest and liquid financial market in the globe. In trading forex, the currency is currency pair which is on floating exchange USD and AUD for example. Forex trading works as exchanging between two currencies.

Most financial institutes use forex trading to make bids on one currency to increase their hedge position in the trading market. The mechanism of forex trading is to buy one currency you have to pay in another currency.

What are currency pairs?

Currency pair is simply two combined currencies of two countries for the foreign exchange market. These two currencies have their own currency exchange rate and position size. These are base currency and quote currency.

In simple words, the currencies paired represents which currency you want to buy the base currency and what is the cost of that currency in the native coins the quote currency. All trading in forex trading takes place in currency pairs.

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How do currency pairs work?

Currency pair is two different country currency combined as a base and quote currency. Currency in 1st is the base currency and 2nd is the quote currency. When you buy base currency you pay the price for that base currency in quote currency value.  The exchange rate of foreign currency keeps fluctuating based on its changing values. The values of one currency will always be stronger than others.

Base currency: The base currency is the 1st currency of the pair that you buy.

Quote currency: The quote currency is the 2nd currency of the pair that you pay in amount to buy the base coin.

For example in EUR/USD, EUR is the base currency and USD is the quote currency. To buy EUR coin you have to pay the amount in USD. That is to buy 1 EUR coin you have to pay $1.35 USD currency.

What is forex commission?

Forex is not like brokers that gain profit from doing trade for you, they are most likely dealers. They act as a counterparty for the investors to assume the market risk; they make a profit from the bids you ask not by charging a commission for the trade. Investors can ask/bid they cannot buy or sell as this is the case in an exchange-based market, once the price is clear there will be no additional fees added, the profit completely belongs to the investors.

 forex commission
What is a pip?

Pip is referred to as a percentage in point,That represents the smallest incremental move gained at the exchange rate. This means the price is quoted to the fourth decimal point in the FX market.

For example, if the exchange rate is 1.3920 and it is increased to one decimal point then the exchange rate would be 1.3921. But an exception applies to the Japanese YEN coins, because 1$ is worth 100yen, so when USD is paired with YEN the decimal point is moved to two points.

How many currency pairs are there?

These are the major pairs:

EUR/USD (euro/dollar)

USD/JPY (dollar/Japanese yen)

GBP/USD (British pound/dollar)

USD/CHF (dollar/Swiss franc)

These are the commodity pairs:

AUD/USD (Australian dollar/dollar)

USD/CAD (dollar/Canadian dollar)

NZD/USD (New Zealand dollar/dollar)

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