Bright Notion

The market is open 24 hours a day, 5 days a week, to accommodate all of the time zones for all of the major players. How can you compare the value of a stock across international lines if the values are expressed in two separate, non-equivalent currencies? And how do you measure gains and losses when conversion rate is constantly changing.

When you begin trading on Forex, you have to learn how to convert currencies and note the difference in values, as well as how currencies are exchanged between international lines. Since Forex is the Foreign Exchange Market, you obvioly cannot expect everyone within the market to trade in US dollars (and why not, you might ask? – but remember that not everyone covets the US dollar). The first step is to find a source that will give you a basic idea of the current exchange rate between your domestic currency and the foreign currency in question.

It is sort of like making reference to miles per gallon or rotations per minute on a car – a direct comparison of one to the other in the form of a ratio. The smallest fraction, or decimal, in which a currency can be traded, is called a pip and this is ually the degree to which a cross-rate is expressed.

This ratio would be expressed as 1.000/117.456. The base currency is almost always expressed as a single unit (as in one dollar as opposed to ten dollars), and frequently that unit of measurement is the US dollar. This is becae the exchange rate may vary from 117.456 to 117.423, but not to 119.024.

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However, with the consolidation of most of the European market trading on Forex to the Euro, many currencies have been eliminated, making trade on Forex for other lands less complicated. If you purchase a commodity in a particular currency, and that currency’s value falls against the US dollar, you can actually make money by selling that same commodity in dollars.

Then, you will need to learn how to read, understand, and ultimately interpret additional market trends. Will it be a clear, calm day with little activity, or is there a storm brewing with winds of change and uncertainty? How can you tell what will happen with your holdings the following day or even further into the future. Simply learning to read market trends can remove a lot of natural apprehension and uncertainty for beginning traders.

Volatility, or the tendency for fluctuation that can affect your earnings within the stock market, is typical within a domestic market but even more evident and much stronger on the Foreign Exchange Market. It also makes items in the foreign country less expensive to trade in U.S. dollars.

While it may seem that purposely adjting the value of a nation’s currency is ‘cheating’, or taking an unfair advantage by making foreign products cheaper to purchase and increasing the value of exports, there are regulations in place to prevent the manipulation of exchange rates for such purposes. However, what happens when the value of a foreign currency changes due to market fluctuation rather than purposeful reductions or increases by a federal government or federal bank? What effect do appreciation and depreciation have on the stock market.

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