You don’t need to worry if you don’t know much about forex or if you think that you don’t have enough knowledge for trading foreign currencies. One of the things that you need to be aware of is that every time you have your currencies changed in a money changer, you are actually doing foreign exchange. If you are interested in making money out of this trade, all you will have to do is to get to know forex basics. The foremost thing that you must know and be aware of is that this type of trading is the biggest in the world.
The basic concepts are rather uncomplicated despite its massive coverage. All of these concepts are also fairly easy to understand.
The eight major markets
The first forex basics that you will need to know is that there are only eight major markets you need to watch out for. These markets are the following:
- The European Union – especially the markets of Spain, Italy, France and Germany
- New Zealand
- The United Kingdom of Great Britain
- The United States of America
This type of concentrated market will make it easier for you to observe trends unlike the way brokers do with stocks where they have thousands of markets to watch. From these eight major markets, you can then decide which of these can make money for you. All of the eight markets above control most of the market movements in forex basics trading.
The reason for this is that all of the eight countries have foreign currency markets that are the most in demand. The data regarding the movements of these currencies are available on a daily basis. This is the main tool that an investor like you will be using in deciding which currency to trade for the day.
Forex basics – how you make money
Another forex basics that you need to know is that these currencies are priced in twos. The reason for this is that each currency’s price is based on the others. A perfect example of this would be AUS/CAN where a quote stating 1.500 means that AUS$1.5 buys you 1 CAN $.
Note that whenever you trade a currency, you are actually making two moves in one action. You are buying and selling at the same time. The obvious effect is that once you sell one, you use the profit you gained to buy the other half of the pair. Each of the currencies involved have interest rates that are determined by the central bank of that country. This means that once you sold a certain foreign exchange, you will have to pay for that currency’s interest corresponding interest rate. On the other hand, when buy a currency, you get to receive the corresponding interest rate on that currency.
One of the best things that the foreign exchange market offers is high leverage. There are times that it goes up as high as 100 to 1. This numerically translates to you can move a total currency worth of $100,000 by just having $1,000. An investor like you can capitalize on this by making the right moves. However, if you make the wrong decisions, this may cause you a lot of monetary losses. The risks are real, but the opportunities of winning far outweigh than that of losing.