Forex Trading For Beginners

Let’s talk today a bit about another basic forex term – “currency pairs’”

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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The short answer to this question is: they don’t. Not on their own. Individual traders like you and I are known as “Retail Traders”, and must go through forex brokers in order to buy and sell currencies on the forex market.

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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Ok, so far, we’ve described what “forex” means and we have compared the forex market to more popular stock market. Today we’re going talk about the history of the forex market.

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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Welcome to the NewbieForexGuide.com Blog…

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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