Some Words and Knowledge Regarding the Foreign Exchange Market
Whether you call it Forex or Fx, you are talking about the Foreign Exchange market. This is where the trading of currencies, one against the other, is done. To have an idea just how big the action is, add all the stock exchanges in the world together and the Foreign Exchange will still be bigger!
When you consider that various speculators, hedge funds, governments as well as companies, plus countless private investors who take part, it is hardly surprising that this market is so strong and that the estimated daily average turnover of the foreign exchange market is over 3 trillion US Dollars.
By far the most asked for rate is the SPOT RATE. This transaction has to be settled within two business days.
With London, New York, Tokyo, Frankfurt and Sydney as the chief trading centres, the action hardly ever closes.
When you are at an auction and you put your hand up, it means you are bidding for something at a certain price. In a similar way, the word BID refers to the price at which the buyer is prepared to buy the currency.
The OFFER means the price at which an amount of currency the seller is ready to sell.
A LIMIT ORDER is when you give instructions the buy or sell a currency at a predetermined exchange rate.
When international banks buy and sell between themselves, the bid and exchange rates are called INTER- BANK RATES.
The difference between the bid and ask price of a currency is the SPREAD.
STOP LOSS is when an order is given to purchase or sell a currency at a price level set by the client on a particular trade which if reached, will close out the particular position at the stated price.
TRANSACTION DATE is the date on which a foreign exchange trade is being done.
The date which foreign exchange contracts settle is called the SETTLEMENT DATE.
Every currency has a three letter code such as for the Euro (EUR), for the British Pound (GBP), for the US Dollar (USD), for the Japanese Yen (JPY), for the Australian Dollar (AUD), for the Swiss Franc (CHF), for the Canadian Dollar (CAD). Actually, these are the major trading currencies and all commonly traded currencies are called the MAJORS.
CABLE is a name given to the US Dollar/British Pound rate in the foreign exchange market.
EFT is the Electronic Fund Transfer which is the transfer of money between banks.
When there is a quote in currency pairs, remember that the first currency is called the BASE currency. The second currency is called the COUNTER currency. As an example when you get a quote GBP/USD at 1.96 it means that for one GBP you will get 1.96 USD. So for ten thousand pounds you will get nineteen thousand six hundred US Dollars.
The many foreign currency exchange companies which you can find on the internet will gladly give you a quote, and by phoning around you can find the best currency rates. They will be better than a high street bank is likely to offer and they will give you a very fast service. Furthermore, most of them will not charge you any commission or the cost of the electronic bank transfer.
Paul Dubsky is director of Foreign Currency Exchange Services Ltd. The company is focused on being able to offer really friendly currency exchange rates. We believe we are the only Foreign Currency Exchange company which offers special rates to Senior Citizens.