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The foreign exchange market is decentralized international market for buying and selling currencies. It is the largest financial market in the world and is also known as foreign exchange, forex or FX.
The foreign exchange market helps businesses and investors to convert one currency to another. At the most basic level, we all participate in it when traveling abroad and sell our local currency to coin money they must spend abroad.
Besides being operated by individuals and businesses, the coins are important for financial institutions, central banks and governments. It facilitates the negotiations and international investment, allowing companies to make money in one currency to pay for goods and services in another.
Why trade currencies?
Exchange operations Conduct allows speculate on the relative strength of one currency against another.
The currency is the most popular market in the world, with a large volume of daily operations. Most of these operations are carried out intraday.
Volume daily sales of over 4 billion dollars in exchange for currency is estimated worldwide. Commercial and financial transactions account for only 10% of this business.
The large number of stock traders and the large amount of foreign currency in which it operates daily, providing exceptionally high liquidity. Market is very simple so you can access any can usually buy a currency in demand because other exchange operator elsewhere want to sell it, or vice versa.
Foreign exchange markets are also systems free of fees that can complicate some other markets.
Normally, you only need to start a small deposit, and operating costs are low. You can perform operations 24 hours a day and take advantage of high levels of leverage.
How does a currency trading work?
Currency prices are denominated in pairs because each operation is buy one and sell the other.
Each pair of currencies is called a three-letter code, as the GBP / USD (British pound against the US dollar) or USD / JPY (dollar against the Japanese yen).
The first currency is indicated in a currency pair is called the base or local currency. The second currency in a currency pair is known as the counter currency.
The price shows how much quote currency is bought with one unit of the base currency. For example: GBP / USD = 1.63792 means that one pound is worth $ 1.63792. To buy a pound, you would have to sell $ 1.63792. If you sell £ 1 would receive $ 1.63792.
Suppose you read a story that leads him to believe that sterling will rise against the dollar. Our budget for the cross GBP / USD is 1.6228 / 1.6230 and you decide to buy a contract to 1.6230. A contract is equivalent to 100,000 pounds or what is the same, the current exchange rate would be $ 162,300. This means that each point or decimal places in this case is $ 10 (in other words, a point is $ 0.001 per pound for £ 100,000 this position means that a point is $ 0.0001 / £ x £ 100,000 = $ 10)
There are no commissions to pay, since the full committee for our CFDs on currencies is included in the spread. While the position remains open, your account will be reflected daily rate variation during the interest night between the pound and the dollar (in other words, the debiting or crediting the procedure replicates Tom Then, according to the interbank market, and a small not more than 0.0008%).
Two days later, the price of GBP / USD is 1.6355 / 1.6357 and you decide to take profits. He sold his contract to the selling price is 1.6355 to close your position.
Their advantage is calculated as follows:
Closing Level: 1.6355
Opening level: 1.6230
Difference: 125 points
His contract £ 100,000 is $ 10 for each point, equivalent to a gain of 125 x $ 10 = $ 1,250.
(To calculate your overall profit, you should also take into account the daily interest adjustments)