Contrary to popular belief, the unification of many European
currencies into one single currency (the Euro) has only
strengthened and rendered more popular the usage of foreign
exchange as an investment, a hedging instrument and as a
tool for speculation. The most marked development has been
the democratisation of foreign exchange in the retail forex market,
the tightening of spreads and drastic improvement of trading
conditions for the small trader.
In practically all investments there is a Foreign Exchange (Forex)
transaction to be made. Whether in international trade, import-export,
or practically any type of business, resorting to some form of forex
foreign exchange operation is practically unavoidable. It is not
surprising then that the forex market is by far the largest in the
world, in fact it is approximately 32.5 times larger than
all equities markets put together.
These rates may be influenced by world economic and
political events, currency rate differentials, as well as many other
factors including extreme weather conditions (hurricanes), acts of
terror etc.
Forex
is the largest marketplace in the world with more than 3.2 trillion
dollars changing hands daily and so making it one of the most
attractive and lucrative markets.
Forex currencies quotation system
Currencies are quoted in pairs, for example – EUR/USD
or USD/JPY. The first currency in the pair is called the base currency
and the second is called the counter currency. The base currency is
the ‘basis’ for purchases and sales. For example, if you buy EUR/USD,
then you acquire Euros and sell
Dollars. You do this if you expect the Euro to grow against the Dollar.
It is also possible for a currency pair to be quoted
as USD/EUR, but this method is used extremely rarely. Each
transaction must have 2 sides – a buy and a sell (or a sell and a buy).
By this we mean that it is impossible to buy 100.000 EUR/USD and then
exchange it for another currency pair (i.e.: EUR/JPY) without closing
the first position.
Also please note that no physical currency delivery will be made. For
these purposes banks and exchange companies, which specialize in
low-rate currency conversions are available.
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