The foreign exchange market involves purchasing and selling money. You purchase a currency with the express intention of selling it at a value higher than what you paid for it. Like other commodities, currency pairs are shown in quotes on the spot market. Since currencies are traded in pairs, they are displayed in a specific manner.
You may be buying a currency related to another country, but you will not actually receive that currency. You do not exchange funds in the market and this is often confusing for newcomers to this financial market. This method of trading can be considered as purchasing shares in another country. You are speculating about the success or failure of that country’s economic climate.
Quotes and an FX Converter
A currency’s value is calculated based on its value to that of a foreign currency. In a quote that is displayed as GBP/AUD, the British pound is termed the base currency and the Australian dollar is the counter currency. This pair shows how many Australian dollars you require to buy one British pound.
If you are a newcomer to the market, it is advisable that you obtain one of the tools known as an FX converter to help you do your calculations. Most FX converter tools offer you the facility to convert a range of currencies, both major and other. The sites where you are able to find these converters also offer you other forex related information, such as news releases and economic data.
You will have a choice of the currency pairs you wish to trade. If you are a beginner, experienced traders generally advise that you commence trading with the major currencies. You will be able to find sufficient information about these pairs to allow you to do analysis and draft charts to make your trades profitable.
There are beginner traders who prefer not to trade the major currencies, particularly traders who are based in an alternate currency country. It is not impossible to match these alternate currencies to a major currency and still show regular profits. An example is if you have a trader who is based in South Africa who makes the decision to trade a pair which includes the South African Rand along with the US dollar. This trader will have more information at his fingertips than an Australian trader who wishes to trade the SA rand. The South African trader understands the workings of the South African Reserve Bank, as well as the political climate in that country. This will more than likely allow the trader to make a profit on this minor pair, based on his or her personal knowledge of the events in South Africa.
You should take care when you choose your trading strategy. It should suit your personality as well as the amount of time you have available for trading. It will be futile for you to opt for scalping as your strategy if you are not able to cope with the stress and the fast pace of the method. Your psychological well-being is as important as your technical market knowledge. If your strategy pulls you out of your normal character, you will feel uncomfortable trading and this will affect the bottom line of your trades.