1, What’s different about the forex market?
Currency trading does not take place on a regulated exchange, nor does a governing body control it. Instead, members trade based on credit agreements, essentially relying on nothing more than a metaphorical handshake. And because FX participants must compete and cooperate with each other, self-regulation provides effective control.
2, What is a pip?
Pip stands for Percentage In Point. FX prices are quoted to the fourth decimal point. For example, if a bar of soap cost $1.20, it would be quoted in the FX market at 1.2000. One pip change would be 1.2001. A pip is the smallest increment in FX trading.
3, What are you really selling or buying in the currency market?
Nothing. The FX market is purely speculative, meaning all trades exist as computer entries. Profits and losses are calculated in dollars and recorded on the trader’s account.
4, Which currencies are traded in the forex markets?
The four major currency pairs are the euro/U.S dollar, the dollar/Japanese yen, the British pound/dollar, and the dollar/Swiss franc. The three major commodity pairs are the Australian dollar/U.S. dollar, the U.S. dollar/Canadian dollar, and New Zealand dollar/U.S. dollar.
5, What is a currency carry trade?
A trader buys one currency that has a high interest rate with another currency that has a lower interest rate. It’s the most popular trade on the currency market, but its declines can be rapid and severe when a majority of speculators decide a carry trade has poor potential and they try all at once to exit their positions.