The stock market’s rule is that the price of any share will be determined against that country’s currency. For example, in India’s stock market, the share price is determined in rupees.
But in the forex market, it is impossible to determine the value of any country’s currency alone. There can be no value in euros or dollars alone. For example, 76 Indian rupees are available for 1 dollar. For example, It is possible to get only 0.60 Euro or 0.93 Australian Dollars with 1 dollar. Again, if you talk about the Japanese Yen, you will get 80 Yen with 1 Dollar.
So, what is the value of the dollar? People from different countries trade in the Forex market; at what price will they buy dollars? For getting the answers to these questions, you must need to know the forex market basics
Forex trading basics
Everything in the Forex market is traded through currency pairs. For example, EUR / USD (EUR / USD), a currency pair. The current rate of 1 EUR / USD = 1.0809. This means that with 1 euro, you will get 1.0809 dollars. Where USD = United States Dollar or American Dollar.
Let’s look at some more currency pairs to understand the forex market basics
- 1 AUD / USD = 0.7389, which means that with 1 Australian dollar, you will get 0.7389 USD.
- 1 GBP / USD = 1.3056, which means that with 1 pound, you will get 1.3056 USD.
- 1 NZD / USD = 0.6756, which means that with 1 New Zealand dollar, you will get 0.6756 USD,
- 1 USD / JPY = 126.40; this means that with 1 dollar, you will get 126.40 Japanese Yen
- 1 EUR / JPY = 136.62, which means that with 1 euro, you get 136.62 Japanese yen.
Now you understand the matter of currency pairs? What if I give you a little twist? Is there a problem if I write USD / EUR instead of EUR /USD? Of course not. But remember, the first currency of a currency pair indicates how much currency you will get next. 1 EUR / USD = 1.4434. This means that with 1 euro, you will get 1.4434 dollars. So, 1 USD / EUR will indicate how many Euros you will get with 1 dollar. The answer would be quite the opposite, 1 / 1.4434 or 0.6928
One question still remains, why are you taking so many numbers every time after the decimal? For example, why write 1 EUR / USD = 1.4434? Just write 1.44. There is no complexity of this decimal in the share market; the price of all the shares is either 20 rupees, not 80 rupees or maybe 1200 rupees. I have never heard of a share price of 20.2543. Why so complex?
For say we write, EUR / USD pair. That means how many dollars you get with 1 euro. In the share market, we do not calculate how many shares of Apple we will get with one share of Google. The Forex market has been taken up to 4th place after the decimal. It has been taken as standard.
Conclusion
Before starting trading forex and investing real money in forex, you need to understand the forex market basics very clearly. It is possible to make money in the foreign exchange market but becoming a profitable forex trader; you first need to build up basic knowledge and then grow your rock-solid strategy. Last but not least, you need to follow your strategy without any doubt & hesitation.
FAQs
1.How do beginners learn Forex trading?
Beginners learn forex through reading blogs and watching youtube videos. If you are also a beginner, then free blogs written on parkingpips would be a great source of free resources.
2.What is the basic concept of forex trading?
The basic concept of forex trading is to buy one currency against another. Or sell one currency against another. When you buy any currency, you will hope that base currency will rise and quote currency will fall. When you sell any currency pair, you will hope that base currency will fall and quote currency will rise. Thus through buying and selling process, the difference in the currency prices will be your profit or loss. This is the forex market basics.
3.Can beginners do forex?
Yes. Of course, beginners can trade forex. Nowadays, with the advent of modern technologies, beginners can get many advanced learning resources online, which makes forex trading easy for beginners.
