The Forex market is quite new to the investment world as compared to the stock market. The model which is used these days was built around 1970's. now, it is one of the largest markets around, way ahead of the stock market. The estimated trading is around $ 2 trillion per day. The Forex is attracting more and more investors each day.

Before trading on Forex, one should know the fundamentals of Forex. Let us start with exchange rates. Exchange rate is the rate of exchange of two currencies of two countries. Although many currencies are traded, but the most popular include US dollar, Japan's Yen, the Euro, the British Pound, and the Swiss Franc etc. Other currencies like Australian dollar, the Hong Kong Dollar and the Canadian Dollar are also quite popular.

The exchange rate is calculated by dividing the numerator by the denominator where the numerator is represented by the currency quoted and the denominator being the base currency.

Let us take an example to make things more clear. If you want to exchange dollars for euro, here dollar is the quote currency. Quote currency specifics the amount of currency that you want to exchange. The base currency is euro here. First you have to find out the current exchange rate either through newspaper, internet etc. Now you multiply the exchange rate with the amount of dollars to exchange. If the exchange rate is 0.5, it means that you get one dollar for 0.5 euros. So multiply $ 1000 with 0.5. which equals 500 euros.

Once an investor has understood these concepts, he will be able to start with currency exchanges.



Source by Michael Campbell, Jr.