How is forex traded?

Forex: How are the trades?

Forex is traded on various national currencies, such as the U.S. dollar, the European currency the euro , Japanese yen, British pound, Australian dollar, Czech or Slovak crown. Shops always take place so that we buy a currency at a different currency. For example, we buy U.S. dollars per euro. If you lead this business, we say that this so-called currency pair sold.

When we trade the U.S. dollar against the euro, abbreviation of the currency pair looks like this: EUR / USD. Since the euro is shown as the first, we say that the euro is the currency pair currency base currency or fixed base . The U.S. dollar is known as the denominational currency . Abbreviation EUR / USD for giving us the exchange rate tells how many units of the U.S. dollar we pay per unit of currency, or how many units of the second currency in the pair must go for the basic unit of currency.

Dimensioning in the hands of dealers

Trade price is expressed in the exchange rate , which is expressed by the quotation. Listing might look like this: "EURUSD from 1.4482 to 1.4484" . Why are shown in the listing of two courses ? Bank dealers who quote exchange rates, realized from each trade for a profit, which is the difference between the two mentioned courses. This difference is known as exchange-rate range, or spread , and everyone we know from classical bureaux de change. The investor buys the base currency for the second higher rate, the ask or offer (in Czech offering or sale), and has the option to sell the base currency for the first lower course, the bid (in Czech inquiry or purchase).

Just dealers play a key role in the foreign exchange market when buying and selling foreign currency on its own account, rather, on account of their banks , acting in the position of the creators of markets (market-makers). When trading reach market makers profit from the difference between buying and selling rates (bid / ask) - this entry is called two-way quotes .

Currency spread or spread

The range or spread representing the profit of market makers. Bank dealers constantly buy and sell foreign currency at the same time to the crucial importance of international transactions. By the principle of two-way quotes on the purchase and sale of course, to a large extent influence the formation of exchange rates .

Spread is often the only cost to the investor's trade. The size or width of the spread depends on the liquidity of the currency pair, or on trading volumes. The smallest spread is the most traded currencies, the Majors, which include not only the U.S. dollar (USD) Euro (EUR), but also the Japanese yen (JPY) and British Pound (GBP). Forex major world center, where most trading takes place, has long been London.