what is forex

Learning forex basics in 10 minutes

I was just going through the cyberspace exploring arenas and ventures for my investment, when I came across a three trillion daily transacted global business, which dealt with foreign currencies and was abbreviated forex. For a novice like me, initiating with this new term was both fascinating on one hand, while on the other hand mind boggling. The experience was fascinating due to my curiosity, and mind boggling due to scattered information on the virtual space. Below are some questions and answers which are recommended for newbie like me, who are just introduced to the complex world of forex,

Q1) What is Forex?

A1) Forex is a conjunction of primarily two words, foreign and exchange. It is a global business of exchange of foreign currencies between the two countries, governments of the countries and gigantic financial organizations. Forex is bought in pairs, for instance, Dollar/Yen. The exchange works round the clock 24 hours a day and 365 days a year, which means that the trading continues on the global level in part or the other. Pip is the smallest unit or increment in which the currencies are exchanged; dollar is the pivotal bench mark currency for contemplating the exact evaluation of other currencies traded on the foreign exchange market as 80% of the trade done is against U.S. dollars. Though with the advent of World Wide Web the complex business of forex has reached the desktops of masses, still there is a general trend of employing a broker to articulate all your financial transactions on the foreign exchange.

Q2) What are the factors determining the rise and fall of monetary evaluation of a currency?

A2) Before venturing into the competitive world of forex, it is paramount to analyze and evaluate the factors which determine the rise and fall of a currency. For example, a couple of years back, $1 were equivalent to Rs. 46 of Indian mainland, which simply means that for the exchange of every dollar an individual or an entity gets Rs. 46 in exchange evaluation. Following are the list of factors which determine the rise and fall of a currency,

Inflation – It is the result of rising inflation in United States of America, due to high increase in oil prices in recent months that the American currency dollar has lost many grounds against the Indian rupee, which stand at around Rs. 43 for now. Rise in inflation proves to be a potent factor when placing your bet on a currency. War, terrorist treats, increase in oil prices, natural calamity, political disorder or a revolution are some of the factors that contribute to inflation, which is defined as rise in prices.

Demographics – Demographic of population, the age of population, the literacy rate of population are equally significant for determining the economic evaluation of a currency associated with a country, for instance, a strong dollar against rupee only signifies that American economy is flourishing at a much spurt rate than the Indian economy. The demographics of population contribute to the infrastructural and occupational necessities of a country, thereby projecting a rich economic growth for the country.

Discoveries – An invention or some recent discoveries by a country, which is significant in providing a competitive edge over the global market is opulent for not only the economy, but also for the currency of that country. For instance, if a country discovers a method to meet all its energy crises with regards to electricity and fuels, then its currency has a much optimistic chance of gaining grounds against other currencies.

Q3) How do you calculate?

A3) Forex increment and decrements are calculated in pips by a simple formula ,

USD/JPY ==DOLLAR / YEN == BID /OFFER

FORMULA= (BID currency unit / EXCHANGE RATE) X budget= 1 PIP VALUE for bid currency

Q4) What is the best way to start your own forex trading?

A4) The best possible way to initiate your own foreign exchange trading will be through a broker authenticated for this exercise, who will charge a nominal fee for buying and selling your currency slots on the exchange, on your behalf.