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Forex means foreign exchange and it is the selling and buying of one currency for yet another. This is a worldwide market and it is heavily traded. Conversion of currency is a requirement as you make online purchases as well as when you are visiting new countries.

There are a few things one should know about this currency market to be able to make an informed decision towards Forex trading.

How trading is done

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In this market, the currencies are always traded in pairs. For all the transactions, it is necessary to have two currencies being exchanged. This is where the term currency pairs come from. This is done so as to show clearly, what the cost of a currency is relative to the other.

Symbols are used to represent the currencies. Every country has its own symbol that is used in the trading. This is necessary because the different currencies have different values against each other. Each pair in the Forex market comes with a market price that is associated with it. This is the price that indicates just how much it takes one currency to exchange against another.

It is easy to find out how much of one currency is needed to purchase another. So as to do this, you will have to flip that pair. So as to come up with the rate, you have to divide using the prevailing rate. When this is done, you will be able to feel how much of a currency is needed to trade for another using its current price in the market. This price keeps on fluctuating because the transactions keep on happening all over the world without stopping.

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Many of the pairs moves about a lot depending on the conditions in the market in a day. They can move 50 to 100 pips. A pip can be defined as the 4th decimal place found in a currency pair. This makes it easier to understand just how much you made during trading or how much you lost.

The profit realized is usually based on the currency, which was purchased. You could have bought 1000 units with each pip worth 0.1; it means that you have a profit of 50. For 10,000 units, then the profit will be 50, and so on. There are different ways of calculating pip value for the various Forex pairs as well as the account currencies.

How to learn about Forex

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If you want to trade, it is important to note that the very first currency is called the directional currency on the price chart. If you check a chart and notice that the price keeps on moving higher, it only means that the movement is higher relative to the other.

So as to learn more about Forex, you should get a chance to see the movement of prices in real time. You can also use some fake money so as to place trades so that you do not have any kind of financial risk. The simulators should help you know the best options available to perfect the trading skills.

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Source by Shalini Madhav