Breaking Down Forex

Foreign Exchange or Forex as it is popularly known refers to the currencies of foreign countries and the process of converting it to the currency of a local one. There is a profit to be made here as well and therefore forex trading is a popular activity. Reading forex quotes can be a bit difficult for a novice. There are two simple aspects to it in order to simplify the process. The primary currency is listed as the base currency and its value will always be at 1.

The currency of USA, the dollar is the central one on which the entire Forex market is based. Irrespective of the country, it is this currency that is used as the ‘base’ currency for all quotes. Some of the major currencies as the USD and the Japanese, the UK Pound,the Chinese Yuan and others. For all of these currencies and others, the general expression is that $1 of USD is equivalent to so much in the second currency. With the US dollar placed in the base unit and with the currency quote going up, it means that the value of the US dollar has appreciated while that of the secondary currency has gone down. This generally means that the US dollar will be able to buy more of the other currency.

There are three exceptions to the US dollar being the primary currency. This is in the case of the British Pound, where the expression is GBP/USD, the Australian Dollar that is written down as the AUD/USD and the Euro expressed as Eur/USD. In each of these cases if the underlying currency, in this case, the dollar is not on the increase, it means it is weakening and the dollar is going down in value.

When trading in forex you will find what is known as the two-sided quote. This means that you will need a bid as well as an offer. The bid is the price quoted for selling a base currency if you choose to do so, or for buying the counter currency. The ask is the price at which you will buy a base currency and at the same time it also the price at which the counter currency will sell.

Dealing with forex requires you to be well versed in the field. The good thing in forex trading is that there is a market somewhere in the world that is open. This gives you the ability to deal anytime of the day no matter which part of the world you are in.