The Forex market
4 January 2010 - 14:38
The Forex market (Foreing Exchange Market) is an international market where currencies are bought and sold on a large scale.
In this market transactions by trillones of dollars to the day, being the greatest and liquid market of the world followed by the stock market are realized secondly.
This market is totally electronic and operates through financial centers around everybody, but that do not count on stable physical locations; reason by which it operates the 24 hours of the day, although only 5 days to the week without including the week ends.
In this Forex market previously only they operated the central banks and private, and the great investors, but nowadays due to Internet and to other means, any person can buy and sell currencies in him, although indirectly through some broker or running.
In Forex each currency is represented by a code made up of three letters; for example, the North American dollar is representing by letters USD.
The main currencies that negotiate in Forex are the North American dollar (USD), the Euro (EUR), the Japanese yen (JPY), the pound sterling (GBP) the Swiss franc (CHF), the Australian dollar (AUD), and the Canadian dollar (CAD).
The operations in Forex imply the purchase and simultaneous sale of two currencies, reason why the currencies in Forex are exhibited in pairs; the most common pairs (for being most liquid) they are EUR/USD, USD/JPY, GBP/USD, USD/AUD, USD/CHF and USD/CAD.
Currency that appears to the left of the bar “/”, denominates currency primary or bases, and is the one that it buys, whereas the currency that appears to the right knows him as it descries secondary, and is the one that is sold (with that it is bought first).
For example, when buying Euros and selling dollars, in terms of Forex, we would be buying EUR/USD, where the Euro is clean the primary one, and the dollar the secondary one.
The pairs of currencies are followed by a number, commonly made up of five digits with a decimal point after first.
This number is the type of change, which specific how many units of the secondary currency are necessary to buy a unit of the currency bases, for example, in EUR/USD 1,2550, it means that 1,25 dollars are necessary to be able to buy 1 Euro.
We see an example of an operation in Forex; we suppose that we have foretold that the Euro (EUR) is going away to appreciate against the dollar (USD) and, therefore, we decided to buy Euros paying with dollars (to buy Euros and to sell dollars).
We suppose that the Euro quotes to 1,30 dollars (EUR/USD 1,30), and decided to buy 1 000 Euros, reason why we paid 1 300 dollars (1 000 xs 1,3).
After weeks, it is that our prognosis was right, and the quote of the Euro raised 1,40 dollars (EUR/USD 1,40), reason why we decided to sell our Euros and to return to buy dollars.
Therefore, we sell the 1 000 Euros that we have, and as its quote is of 1,40 dollars, we received 1 400 dollars (1 000 xs 1,4).
Reason why our gain will be of 100 dollars (1 400 dollars that we have now, except the 1 300 dollars that we had initially).
Labels: Personal finances, Finances
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Related contents:
- Advantages to invest in Forex
- To invest in currencies
- Test of market
- Plan of businesses (Part 3): The market study
If, but the market forex is risky, is necessary to know what it has been becoming for investing.
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