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Understanding Foreign Exchange Rates

Foreign exchange rates, when it comes to dealing with Forex Trading or simple everyday transactions, can often be difficult to decipher and understand if one does not deal with them on a daily basis. Failure to understand what Foreign Exchange rates represent and how they work is perhaps a large reason why many people don’t succeed in Forex Trading activities; they simply buy up whatever they can and hope for the best. However, learning about Foreign Exchange rates is just one of the lessons that should be learned when delving into Forex Trading from the beginning, especially since it is what the whole activity is all about.


When dealing with foreign exchange rates, the basic issue to know about them is that there are two numbers or currencies involved. There can never be only one number involved because a Forex Trading transaction involves the buying of one currency and the selling of another currency, hence the two numbers and currencies.

The first number of a typical foreign exchange rate, the numerator, will always be the base rate for that exchange, while the second number, the quote or term currency, is the term that will fluctuate in relation to the base rate. The base rate is always going to be the number 1; therefore, the other number will be a number that is either lower or higher than 1, but usually higher. An example of this would be a Euro to United States Dollar exchange where the base rate is the Euro and the term currency is the United States Dollar. If the foreign exchange rate was expressed as 125:1 or just simply 125, that would be interpreted as meaning that 125 United States Dollars must be paid in order to obtain 1 Euro unit. In general when performing foreign exchange transactions, one should be looking out for and hoping that the term currency they are trading will fall in relation to the base currency that one is dealing with. This is the basis of a profit when dealing with foreign exchange rates and Forex Trading, and thus the basis for the trading activities themselves.

Of course, foreign exchange rates will probably be slightly different depending on where you do your trading. But this is generally how the markets work. In relation to Forex Trading, though, there are also a couple issues that must be understood when discussing foreign exchange rates. As mentioned, one currency will be strengthened while the other is weakened. But an important aspect of this weakening and strengthening is what actually causes it.

Since foreign exchange trading only goes on during the weekdays, most of the fluctuations of currencies go on during the weekend. Some things that can drastically effects currency values include political events, natural disaster catastrophes, terrorist activities, as well as the price of oil. All of these things need to be taken into consideration before buying or selling either currency, and all of these factors must be considered when completing a Forex Trade as well. If you intend to get involved with Forex Trading in any fashion, understanding the explanation of foreign exchange rates and the events that affect it are crucial to one’s success.

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Asides

  • Wondering if online forex trading is genuine? The answer is yes, online forex trading is genuine. However, not all forex brokers are reputable. Online forex brokers who operate dealing desk operations should usually be avoided as they are believed to make their money by trading against you so you are pretty much guaranteed to lose your money. Look for brokers who run no dealing desk operations or a forex Electronic Communications Network otherwise known as an ECN.  The reason more everyday individual forex traders use a retail forex broker instead of trading via an ECN which is regarded the most ideal way to trade forex online, is that retail brokers usually have smaller minimum balances and many new traders can only afford a small initial deposit.

  • If you are new to forex trading and wondering what is a forex trading account and how to get one, a forex trading account is an account that you apply for with an online retail forex broker. Your account allows you to trade forex online at any time of day or night from Sunday at 5:00PM EST to Friday at 4:00PM EST.

    You will usually have to fill out an application and submit evidence of your identification to obtain an account with any reputable forex broker. Your application will be reviewed and once accepted you will then have to fund your account in order to begin trading forex. Different brokers have different limits on the amount that you need in order to establish a live account forex trading.

  • FX is just another term for forex and fx online trading refers to forex trading conducted via the Internet. The Internet has made forex trading accessible to the masses. Once upon a time  the fx trading market was restricted to participants trading on the interbank level and other well-financed players. Today, every day indivuduals are trading forex via one or another online forex trading platform thanks to the services provided by retail forex brokers.

  • Day Trading is an investing term. It refers to the act of buying and selling financial instruments within the same trading day, which means your trade does not carry over into another trading day. You open and close positions all in the same trading day.

    Forex is a short form of foreign exchange and foreign exchange refers to the financial market wherein currencies are exchanged or traded.

    Currency when referenced in the context of day trading forex refers to the money of one country that gets exchanged or traded for the money of another country.

  • Don’t expect to be able to predict what’s going to happen in the forex market. The forex market is unpredictable. Just when you think you have the market figured out, it does the exact opposite of what you expect it to do based on your previously drawn conclusions.

  • When you consider that even professional forex traders lose money it should give you a good enough idea that forex trading is not Math or Science. There isn’t a formula that  will yield profit 100% of the time like adding 1 + 1 must yield 2 100% of the time.

  • Some forex analysts recently forecast that that euro would be trading at 1.45 USD within a few months and if things continue on their current path these analysts will have projected accurately. The EURUSD rate is currently fluctuating between a day low of 1.4697 and a day high of 1.4828 August 13th, 2008.

  • The US dollar is starting to let up a bit, and analysts expect the majors to do some climbing back after dropping significantly against the USD over the last couple of weeks; however the expectation is for the majors to drop again.

    Get some trading ideas from expert strategists who are following the USD currency trading drama.
    Forex Market Prepares For Dollar Strength Correction

  • FXCM Trading Station II is probably one of the best forex trading platforms out there for novice traders. It’s fairly easy to use. In fact it’s such a nice system even Deutsche Bank uses it with their DBFX trading station. But in the case of FXCM don’t expect the trading station to behave exactly the same in live mode as in demo mode. There is definitely a difference even though you can’t see the difference structually. Even FXCM admitted the live mode and demo mode aren’t exactly the same. They look the same but your trading experience while in demo mode will be a lot more profitable than while in live mode. That should make you wonder. They say it’s the slippage and volatility but in demo mode you’re almost always profiting. In live mode almost always losing….

  • The truth is you probably won’t get rich trading forex. Successful forex traders understand the foreign exchange market and currency trading on a level that is not understood by the average retail forex trader. If you don’t actually understand the fundamentals or even the technicals for that matter you’re going to find it’s a lot more difficult to make a profit from your fx trading account; but even though it will be difficult it’s not impossible. You probably won’t join the forex millionaires club,  but you can still make decent money.

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Here is a video that aims to demonstrate how you can make money trading currencies using Fibonacci Retracements and Fibonacci Profit Targets.

This video demonstrates a method for making money in the foreign exchange market using pivot points. Pivot points are turning points.

In the forex market the term would apply to the the points throughout the previous trading day at which traders and investors leaned towards a bull market or a bear market in general sentiment.

Ken Calhoun with forexonfire.com talks about how you can learn the technical signals to use and how to spot pivots, break outs, break downs using currency pairs when reading your charts, and how to setup your charts for currency trading.

He talks about currency pair volatility, learning how to spot patterns, pivot points, learning when to exit and not initiate another trade.

Here is an educational video of sorts put out by the guys gftforex.com. The video aims to teach you how to spot forex options scams centered around advisory services and newsletters ect. It is very detailed and straightforward.

The video suggests that your scam siren should definitely start going off if anyone comes trying to sell you on forex options trading by promising they have a system that is:

Easy
Low Risk
Based on secret trading methods used by the pros which the pros don’t want you to know
Available to you even if you don’t have lots of money thanks to leverage.

A look at forex trading. This video attempts to take the mystery out of foreign exchange by breaking it down into it’s “principal parts and players”.

The video explains how foreign currency is brought to other countries and how this creates the practice of currency trading. The video addresses the role central banks of countries, commercial banks, financial companies and brokerage houses, and private individuals play in the foreign exchange markets.

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