Exchange rates operate with two basic concepts – currency and currencies. While the currency exchange rate operates with cash, the foreign exchange rate operates with non-cash receivables in foreign currency. Most often, this is money deposited in a bank account in a foreign currency. And the foreign exchange market, or forex, is one in which one currency is converted into another.
What are the main currencies?
At a basic level, the forex market has currency pairs that describe their relative price to each other. For example short euros and crowns shows the price of one euro in Czech crowns. The most commonly traded pairs are British Pounds and US Dollars, US Dollars and Japanese Yen, US Dollars and Swiss Francs, and the Euro and US Dollar. These are called major currencies or forex majors.
What are the advantages of the foreign exchange market?
The foreign exchange market is distinguished from the others mainly by its huge geographical coverage – there are almost 200 currencies that can be traded all over the world. It is not centralized and on some platforms you can trade practically at any time. It is also characterized by high liquidity.
How does the lever work?
Even relatively small investors can trade in the foreign exchange market. For this, they can use so-called leverage, where they borrow from a broker against a small collateral and trade with a multiple of the provided capital. If you leverage twenty times the value, for example, with $2,000 of equity, you gain access to $40,000. Leverages amplify possible earnings, but also losses. If the exchange rate falls by more than what you invested, you will lose everything.
You can also insure yourself against changes in the exchange rate. The most common is the use of futures contracts, where both contracting parties determine the price in advance, but the actual trade takes place in the future. A similar solution is an option contract, which allows you to buy or sell assets at a pre-agreed price at a pre-agreed time.
When trading on the foreign exchange market, you must always have an overview of current events. edevizy.cz will serve you for this.
