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Forex Basics
The Basics
Currency Pricing Factors
Trading Instruments
Investment Common Sense
Keywords
ISO 4217 Symbol
 
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Forex Basics

FOREX is short for "FOReign EXchange". The term refers to the international exchange market for buying and selling currencies.

Currencies are traded against each other and according to convention are expressed in pairs and in specific order: AAA/BBB. The first currency is called the base currency and is usually the stronger currency at the creation of the pair; whereas the second currency, called the counter currency, is the weaker one at the pair creation. Each currency symbol is expressed according to the ISO 4217 international 3 letter code. Currency pairs with common symbols such as AAA/BBB & AAA/CCC are positively correlated to each other since they are both influenced by the same AAA symbol factors.

Check the ISO 4217 symbol list to find the symbol for a countryís currency

An appeal of the forex market to many traders is the leverage available. While margin in the equity market is typically 2:1 foreign exchange leverage is far higher. It can be 50:1, 100:1 or 200:1 depending on the broker and size position being traded. This enables traders to make relatively larger transactions with smaller actual capital. Trading using leverage may provide substantial profits or significant losses; potential gains or losses are vastly amplified.

As in equities trading, there are two basic analytic approaches for trading forex: The first is fundamental analysis. Currencies are analyzed based on the economy, politics and rumors of its issuing country. The second strategy is technical analysis. This approach monitors the price changes of a currency pair's chart. The thinking behind technical analysis is that all the information available about the currency is factored into the price structure; therefore future price movement can be deduced from study of recent price action and past market behavior.



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