The value of any currency on Forex is determined in relation to the value of all other currencies. In other words, the value of 1 U.S. dollar changes based on whether you are comparing it to the Euro, the Australian dollar, the Japanese Yen and so on.

The buying and selling of any of these currencies is always done in what’s known as currency pairs.

A currency pair consists of a base currency and a quote currency. The base currency is the currency you intended to purchase. The quote currency is the currency you intend to use to purchase the base currency.

Together, the pair shows you how much of the quote currency is needed to buy one ‘unit’ of the base currency.

To illustrate this, let’s look at some exchange rates for December. 15th, 2007. We’ll compare the U.S. Dollar against the Euro, Canadian Dollar and Japanese Yen:

1 EUR = 1.44245 USD       1 USD = 0.69326 EUR

1 CAD = 0.98303 USD      1 USD = 1.01720 CAD

1 JPY = 0.008828 USD     1 USD = 113.275 JPY

The pairs are as follows:

EUR/USD = 1.4  selling Euros to buy Dollars

USD/EUR = 0.69  selling Dollars to buy Euros

CAD/USD = 0.98  selling Canada Dollars to buy U.S. Dollars

USD/CAD = 1.01  selling U.S. Dollars to buy Canada Dollars

JPY/USD = 0.0088 – selling Yen to buy Dollars

USD/JPY = 113.27 – selling Dollars to buy Yen

Notice that the currency being sold is listed first. The EUR/USD pair tells you that for every Euro you sell, you are purchasing 1.4 U.S. Dollars. Likewise, the USD/EUR pair tells you that for every Dollar you sell, you are purchasing 0.69 Euro.

You are always buying and selling simultaneously when you trade currency on Forex.

I hope this makes it a lot clearer….

Till next time…

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“Exchange Rate” can be defined as the price of one currency in relation to another.

A fixed exchange rate, like the one established in 1944 by the Bretton Woods Accord, is an official rate set by monetary authorities (and sometimes governments).

Fixed rates are typically set to a pre-determined value (e.g., the price of an ounce of gold), and allowed only slight fluctuation.

A floating exchange rate is what is in effect on the foreign exchange market today. This type of rate is not set to any outside reference point. Rather, the rate is determined by the market forces of supply and demand.

Tomorrow, our next concept: “Currency Pairs”

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Online retail trading by individuals (represented by online retail brokers) is still in its infancy, relatively speaking. Prior to the Internet, and subsequent availability of real-time market data, it was virtually impossible for the average person to get involved in the forex market with any degree of success.

Today, however, you can buy and sell currencies at the click of a button, in much the same way as you buy and sell stocks. Everything has been automated and linked up electronically.

As with trading stocks on the stock exchange, there are many, many variables to take into consideration when it comes to determining fluctuations in currency values. There is a bit of ‘jargon’ to learn, and a share of concepts which must be mastered.

Unfortunately, there are unscrupulous companies out there who take advantage of this ‘learning curve’, and attempt to scam would-be retail traders. Forex opportunity scams are still prevalent – some estimates place the number as high as 90% .

Therefore, it is imperative that you learn the basics of Forex before you get involved with any ‘advanced’ training courses, trading systems or online brokers!

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The origins of the forex market date back to 1944, when The United Nations Monetary Fund convened in Bretton Woods, New Hampshire to devise a plan for stabilizing the world economy.

The British Pound had been, up until World War II, the monetary unit of choice when comparing the relative value of foreign currencies. However, Hitler’s regime managed to devalue the Pound by way of a massive counterfeiting scheme. Something had to be done quickly in order to avert a worldwide economic depression.

Out of this meeting came the “Bretton Woods Accord”. This new policy implemented the Gold Standard, tying the value the U.S. Dollar to the price of one ounce of gold ($35.00 per ounce at the time). It was further agreed that the Dollar would replace the British Pound as the benchmark “currency of exchange”. All other currencies were aligned to the Dollar, and a ‘fixed exchange rate” of ± 1% was established.

In other words, a foreign currency could fluctuate a maximum of 1% higher or lower than the Dollar. Any fluctuations beyond this limit required that the ‘offending’ nation’s central bank step in to correct the imbalance.

The Bretton Woods accord remained in effect until 1971, when it was determined that the U.S. dollar could no longer hold steady relative to gold. At this time, the ‘fixed exchange rate’ model was abandoned in favor of the ‘floating exchange rate’ we still use today.

Tomorrow we’ll deal how you as an individual forex trader fit into the scheme of things.

William

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The definition of the stock market is simply the business of buying and selling stock for the financial aspect.  Stock refers to a supply of money that a company has raised.  Investors (or stock holders) give the company this supply of money in order to help that company grow, therefore increasing the value of their stock and in turn making a profit.

The stock market is one of the more traditional ways to create a profit from an investment…

Now let compare the two..

1 - The stock market allows trading to take place basically during the usual business hours. The forex market is open 24 hours, 6 days per week (Saturday to Saturday). This gives you more flexibility if you are going to being trading the forex on a part-time basis.

2 – The stock market has thousands of stocks to choose from. Activity in the forex market is mainly focused around 8 major currencies – U.S. Dollar, British Pound, Euro, Japanese Yen, Hong Kong Dollar, Canadian Dollar, Australian Dollar and Swiss Franc.

3 – The forex market allows the individual trader the ability to use the power of leverage. This means that you can make a trade worth $10,000 even if you only have $1,000 in your trading account. The stock market does not allow this.

4 – There are minimal commissions in the forex market. The Forex Market is considered to have the lowest overall commissions relative to trade size compared with other financial markets.

5 – The forex market has high liquidity. High liquidity means that there will always be someone to buy or sell any currency you want. In the stock exchange market, if you want to sell a stock, you may have to wait a relatively longer period until someone is available that wants to by the stock from you.

6 – The forex market is the largest financial market. In fact, with trillions of dollars traded per day, the forex market is larger than all other financial markets combined. Because it is so large, no one entity can affect significant changes. This means that you don’t have to worry about any one person or any one company “cornering the market” and causing drastic changes to their benefit, as can occur in the stock market.

7 – The forex market is recession proof. Recession is often defined as a contraction in the economic activity for a sustained period of time. However, although there is reduced activity, there still has to be the exchange of currencies because of export and import. Therefore, even in a recession, you can trade on the forex market profitably.

8 – The start up cost for online forex trading is very little compared with trading on the stock market. You can open an online forex account with as little as $50. You can even open a free demo forex account, to practice trading and gain experience without risking your own money.

Next, we’ll talk breifly about the history of forex.

To Your Trading Success,

William

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As such, over the coming weeks and months, we’re going to start with the basics and build up from there.

Today, we’re going to define the term “Forex“…

The forex market, also known as the foreign exchange or the fx market, is the place where currencies are traded.  It is the largest financial market in the world with an average traded value of over 4 trillion per day and includes all of the currencies in the world.

Compare that to the $25 billion that is traded on the New York Stock Exchange on a daily basis and you can easily see how enormous the forex market really is.  It actually equates to more than 3 times the total amount of stocks and futures markets combined.  Forex is tremendous!

But what exactly is traded on the forex market? The simple answer is money.  It is the simultaneous buying of one currency and the selling of another.  Currencies are traded through a broker and are always traded in pairs. A pair would be like the Euro and the US dollar pair (EUR/US) or the British Pound and the Japanese Yen pair (GBP/JPY)

See you tomorrow…

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The main idea behind the website is to essentially help people that are new and interested in online forex trading, but don’t know where or how to start.

The “Newbie Forex System” outlines a simple 3-step approach that anyone, even an absolute newbie, can use to quickly develop into a profitable forex trader.

This blog would be used to provide forex trading tips, information and resources that are best suited forex beginners.

Maybe you’re fearful because you don’t understand the forex market at all….

Maybe you don’t know where to get the best training in forex trading; that’s suitable for forex beginners…

Maybe you don’t know which is the best forex broker or forex trading platform to use….

… Whatever is the reason that you haven’t started trading forex, we’re here to help you.

To Your Forex Trading Success!

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