Introduction to Forex Market

14 October 2011

Before even starting to invest in the forex market, it is good to have an introduction to forex market basics. One of the best ways to initially learn about the forex market is through an introduction to forex market terminologies.

Terminology #1: Forex Trade

Forex trade is exchanging 1 currency vis-a-vis another. This is usually done between a strong currency and another currency with lesser strength. The strong currencies usually emanate from the countries which are considered as economic powers. These countries include the following: United States of America, Japan, European Union, Great Britain, and China. The currencies of these countries are what are usually traded versus other currencies across the globe.

Terminology #2: Forex Market

This is the exchange market where all the currency trading happens. The foreign exchange market runs for twenty four hours. It is considered as one of the busiest financial markets in the world. This is where the lucrative exchange of currencies happen. One forex trader can in fact double their investment just within second of joining the trade in the forex market. The best thing about forex trading in the forex market is that all your attention could be focused on it either fully or just partially as brokers could always be hired to look out for the changes in the market for you.

Terminology #3:Exchange Rate

Exchange rate is simply the value of 1 currency versus another. For instance the exchange rate of the Euro versus the US Dollar is 1.30. This means that 1 Euro would exchange for $1.30 in the foreign exchange market. The exciting and also risky thing about the forex market is that it is volatile. It is prone to frequent changes depending on the economic strength of countries that are influenced by different forces (i.e. political, economic, social, technological, etc) in the global environment.

Terminology #4: Spot Market

This is the active market wherein currencies are traded at the current exchange rate. This is a more in-depth definition of the forex market because the exchange rate is factored into the equation.

Terminology #5: Currency Pair, Base Currency, Counter Currency

A currency pair pertains to the 2 currencies that are traded given a certain forex rate. The base currency and the counter currency are what comprises the currency pair. The Base Currency is the first currency while the Counter Currency is the second currency. Among the two currencies, it is the counter currency which is less stronger.

Terminology #6: ISO Currency Codes

The ISO currency codes are simply the standard acronyms for the currencies traded at the forex market. For instance the euro has the acronym EUR. The US dollar has the acronym USD. The British Pound has the acronym GBP while the Japanese Yen has the acronym JPY. It is good for the forex trader to at least be familiar with these acronyms.

Terminology #7: FCM (Futures Commission Merchant)

FCM stands for futures commission merchant. It simply refers to the person that has been authorized by the USA Commodities futures trading Commission to manage and receive payment coming from foreign exchange traders.


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