Basic Forex

Forex is a trading industry whereas buyers and sellers gamble on pairs of currencies. The currencies are sold in pairs, which one currency is the root and the other currency is counter quoted. For example, USD/JPY is a pair of currencies. In this instance, the base currency is the United States Dollar, and JPY is the Japanese Yen quoted currency. Since, Japan is one of America’s largest investors; thousands of people are banking on USD/JPY currencies each day. The trading works as follow:

In this setting the USD dollar is believed to decrease the value of the Japanese Yen currency. In other words, the forex trader is gambling on the USD to strengthen, and that the Japanese Yen currency will weaken. Since this is the case, a forex trader would buy the currencies in pairs in this order. On the other hand, if the forex trader believed that the Japan Yen currency will strengthen, and the US Dollar will weaken he would sell a pair of currencies in this order; JPY/USD. Since Japan is America’s larger investors, the USD/JPY pair is one of the highest ventured pair of currencies in forex trading.

USD/EUR is the first best seller in forex trading. Like the USD/JPY currencies the buyer would base his decision on strengths and weakness. In this instance, a forex trader would decide on currencies based on the strength of pounds and US dollars. If a trader believes that the European dollar will strengthen and increase in value over the USD, he would buy a pair of EUR/USD currencies. Again, if the forex trader believes that the US Dollar will increase in value over the EUR, he would sell the pair in this order: USD/JPY.

In summary, forex trading is a foreign market exchange whereas the forex trader hopes to gain profit. In forex trading, terms are used, such as rollover. The term rollover defines timeframes in which the investor can gain or lose interest. The interest paid or earned is based on margins and the situation in forex trading. Those investing in forex trading are recommended to close out at 5 P.M. Eastern Time to avoid paying or earning interest on forex trades. Lastly, the interest rates are based on borrowing and purchased ventures. If you borrow currencies you will pay interest, and if you buy currencies you can earn interest. To earn currencies you must have a margin percentage at around 2%. In addition, in forex trading if the interest rates are high, and you purchase pairs of currencies while the rates are high, you may gain interest.