A means of winning large profits. Foreign exchange is the trading of one currency against another. Execs refer to this as currency exchange, but could also use the acronyms Foreign exchange or FX. Foreign exchange is required in numerous circumstances. Customers usually come into contact with currency exchange when they travel. They're going to a bank or currency exchange bureau to convert their "home currency into, the currency of the country they mean to travel to. They could also purchase goods in a foreign land or thru the Web with their credit card, in which case they will find the amount they paid in the foreign currency will have been converted to their home currency on their credit card statement.
Though each such forex is a relatively little transaction, the total of all such transactions is important. Companies typically have to convert currencies when they conduct business outside their home country. They export in goods to another country and receive payment in the currency of that foreign country, then the payment must often be converted back to the home currency. Likewise, if they need to import goods or services, then businesses will often have to pay in a foreign currency, requiring them to first convert their home currency into the foreign currency. Large companies convert huge amounts of currency annually.
The timing of when they convert can have a large affect on their balance sheet and bottom line.Investors and stockholders need forex whenever they trade in any foreign investment, be that shares, bonds, bank deposits, or real-estate. Speculators and backers also trade currencies at once to benefit from movements in the currency exchange markets. Commercial and Investment Banks trade currencies as a service for their commercial banking, deposit and lending buyers. These institutions also typically participate in the currency market for hedging and proprietary trading purposes. Govts and central banking organizations trade currencies to improve trading conditions or to interrupt in an attempt to adjust industrial or monetary imbalances. Though they do not trade for speculative reasons â€"- they seem to be a charity â€"- they regularly have a tendency to be profitable, since they generally trade on a long term basis.
Foreign exchange rates are determined by the forex market.A foreign exchange rate is often given as a pair consisting of a bid price and an ask cost. The ask price applies when purchasing a currency pair and represents what has to be paid in the quote currency to get one unit of the base currency. The bid price applies when selling and represents what is going to be obtained in the quote currency when selling one unit of the base currency. The bid price is always lower than the ask cost. Buying the currency pair implies purchasing the first, base currency and selling (short) an equivalent quantity of the second, quote currency (to pay for the base currency). (It's not required for the trader to possess the quote currency before selling, as it is sold short.) An investor purchases a currency pair, if she suspects the base currency will go up relative to the quote currency, or equivalently the corresponding exchange rate will go up. Selling the currency pair implies selling the 1st, base currency (short), and buying the second, quote currency.
A speculator sells a currency pair, if she thinks the base currency will go down relative to the quote currency, or equivalently, the quote currency will go up relative to the base currency. After purchasing a currency pair, the trader will have an open position in the currency pair. Straight after such a transaction, the value of the position will be close to zero, because the value of the base currency is roughly equal to the value of the equivalent amount of the quote currency. In reality the value will be slightly negative, due to the spread concerned.
Though each such forex is a relatively little transaction, the total of all such transactions is important. Companies typically have to convert currencies when they conduct business outside their home country. They export in goods to another country and receive payment in the currency of that foreign country, then the payment must often be converted back to the home currency. Likewise, if they need to import goods or services, then businesses will often have to pay in a foreign currency, requiring them to first convert their home currency into the foreign currency. Large companies convert huge amounts of currency annually.
The timing of when they convert can have a large affect on their balance sheet and bottom line.Investors and stockholders need forex whenever they trade in any foreign investment, be that shares, bonds, bank deposits, or real-estate. Speculators and backers also trade currencies at once to benefit from movements in the currency exchange markets. Commercial and Investment Banks trade currencies as a service for their commercial banking, deposit and lending buyers. These institutions also typically participate in the currency market for hedging and proprietary trading purposes. Govts and central banking organizations trade currencies to improve trading conditions or to interrupt in an attempt to adjust industrial or monetary imbalances. Though they do not trade for speculative reasons â€"- they seem to be a charity â€"- they regularly have a tendency to be profitable, since they generally trade on a long term basis.
Foreign exchange rates are determined by the forex market.A foreign exchange rate is often given as a pair consisting of a bid price and an ask cost. The ask price applies when purchasing a currency pair and represents what has to be paid in the quote currency to get one unit of the base currency. The bid price applies when selling and represents what is going to be obtained in the quote currency when selling one unit of the base currency. The bid price is always lower than the ask cost. Buying the currency pair implies purchasing the first, base currency and selling (short) an equivalent quantity of the second, quote currency (to pay for the base currency). (It's not required for the trader to possess the quote currency before selling, as it is sold short.) An investor purchases a currency pair, if she suspects the base currency will go up relative to the quote currency, or equivalently the corresponding exchange rate will go up. Selling the currency pair implies selling the 1st, base currency (short), and buying the second, quote currency.
A speculator sells a currency pair, if she thinks the base currency will go down relative to the quote currency, or equivalently, the quote currency will go up relative to the base currency. After purchasing a currency pair, the trader will have an open position in the currency pair. Straight after such a transaction, the value of the position will be close to zero, because the value of the base currency is roughly equal to the value of the equivalent amount of the quote currency. In reality the value will be slightly negative, due to the spread concerned.
About the Author:
Todd Watson trades in Forex, tests Binary Option strategy and is always hunting for the next best Forex Robot.
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