Some Words and Some Knowledge Regarding the Foreign Exchange Market

Whether you call it Forex or Fx, you are talking about the Foreign Exchange market. This is where the trading of currencies, one against the other, is done. To have an thought just how huge the action is, add all the stock exchanges in the world collectively and the Foreign Exchange will still be larger!

When you consider that various speculators, hedge funds, governments as well as companies, plus countless private investors who take part, it is hardly surprising that this market is so strong and that the estimated daily average turnover of the foreign exchange market is over 3 trillion US Dollars.

With London, New York, Tokyo, Frankfurt and Sydney as the chief trading centres, the action hardly ever closes.

The spot rate, is by far the most questioned for. This transaction has to be settled within two business days.

Bid, refers to the price at which the buyer is prepared to buy the currency. It is like when you are at an auction and you are putting your hand up to say you are willing to buy something at that price.

Offer, means the price at which an amount of currency the seller is ready to sell.

Limit order, is when you give instructions to buy or sell a currency at a predetermined exchange rate.

Inter bank rates, means the bid and exchange rates when international banks buy and sell between themselves.

Spread, is the difference between the bid and question price of a currency.

Stop loss, is when an order is agreed to buy or sell a currency at a price level set by the client on a particular trade which if reached, will close out the particular position at the stated price.

Transaction date, is the date on which a foreign exchange trade is life done.

Settlement date, is the date which foreign exchange contracts settle.

Cable, is a name agreed to the US Dough/British Pound rate in the foreign exchange market.

EFT, is the Electronic Fund Transfer which is the transfer of money between banks.

Every currency has a three letter code such as for the Euro (EUR), for the British Pound (GBP), for the US Dough (USD), for the Japanese Yen (JPY), for the Australian Dough (AUD), for the Swiss Franc (CHF), for the Canadian Dough (CAD). Really, these are the major trading currencies and all commonly traded currencies are called the majors.

When there is a quote in currency pairs, remember that the first currency is called the base currency. The second currency is called the counter currency. As an example when you get a quote GBP/USD at 1.96 it means that for one GBP you will get 1.96 USD. So for ten thousand pounds you will get nineteen thousand six hundred US Dollars.

The many foreign currency exchange companies which you can find on the internet will gladly give you a quote, and by phoning around you can find the best currency rates. They will be better than a high street bank is likely to offer and they will give you a very quick service. Furthermore, most of them will not charge you any commission or the cost of the electronic bank transfer.