Most people are well aware of the existent of Forex trading nowadays. Forex market exists wherever one currency is traded for another. Forex, or Foreign Exchange Market, is generally works as an international currency exchange market. Investors and speculators are allowed to trade currencies from all around the world through Forex trading.
To start trading on FOREX, one must first learn how to read FOREX quotes. Foreign exchange quotes are always listed in pairs (e.g. USD/JPY 109.2): the first listed currency is known as the base currency with a constant value of 1 unit; while the currency listed in the second is known as counter. In our given example, USD/JPY 109.2 means a dollar of United States Dollar is equal to 109.2 Japanese Yen. In other words, the quote shows the relative value of one currency compare to the other. It means the value USD had been increased when USD/JPY quote goes up
If you are new to trading it makes sense to deal in the more popular currencies. There are two main reasons for this. Firstly you do not want to be left with a currency where there is little interest and you may have difficulty selling. Secondly the spread between the bid/ask prices is likely to be narrower, making it easier to make a profit.
Facts about Forex market
As a matter of fact, large international banks are still the major traders in currency exchange market. Deutsche Bank is one of the top currency traders; along with other major banks like UBS, Citi Group, HSBC, Barclays, J. P. Morgan Chase, Coldman Sachs, ABN Amro, Morgan Stanley, and Merril Lynch; these banks are said to be responsible for more than 70% trades in currency market.
When you are trading Forex with currency dealer, the Forex quotes might look a bit different from our previous example. Often, a two-sided quote, consisting of ‘bid’ and ‘ask’ price, is listed when dealing with currency brokers. For example, EUR/USD 1.2385/1.2390: 1.2385 is known as the ‘bid’ price while 1.2390 is commonly known as the ‘ask’ or ‘buy’ price. The ‘bid’ is the price at which you can sell the base currency; while the ‘ask’ is the price at which you can buy the base currency. As you study the numbers, you might realize that the two-sided currency price is quoted against you. Traders are forced to buy the currency in a higher price than the selling one. This is done because FOREX trades are done without any commission chargers. Thru quoting currency ‘bid & ask’ price differently in this way, the currency brokers are manage to make profit without charging their client commission fees directly.