About forex trade system
Exchange rate
In finance, the exchange rate (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 120 Japanese yen (JPY, A?) to the United States dollar (USD, $) means that JPY 120 is worth the same as USD 1. The foreign exchange market is one of the largest markets in the world. By some estimates, about 2 trillion USD worth of currency changes hands every day.
Quotations
An exchange rate quotation is given by stating the number of units of a price currency that can be bought in terms of 1 unit currency. For example, in a quotation that says the EUR-USD exchange rate is 1.2 USD per EUR, the price currency is USD and the unit currency is EUR.
Note that, using direct quotation, if the home currency is strengthening (i.e., appreciating, or becoming more valuable) then the exchange rate number decreases. Conversely if the foreign currency is strengthening, the exchange rate number increases and the home currency is depreciating.
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When looking at a currency pair such as EUR/USD, many times the first component (EUR in this case) will be called the base currency. The second is called the counter currency. For exemple : EUR/USD = 1.2836, means EUR is the base and USD the counter, so 1 EUR = 1.2836 USD.
Free or pegged
If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand. Exchange rates for such currencies are likely to change almost constantly as quoted on financial markets, mainly by banks, around the world. A movable or adjustable peg system is a system of fixed exchange rates,but with a provision for the devaluation of a currency. For example, between 1994 and 2005, the Chinese yuan (CNY, A?) was pegged to the United States dollar at A?8.2768 to $1. The Chinese were not the only country to do this; from the end of World War II until 1970, Western European countries all maintained fixed exchange rates with the US dollar based on the Bretton Woods system. [2] The euro today can also be viewed as a fixed exchange rate system among participating European nations.
Nominal and real exchange rates
The real exchange rate (RER) is an important concept in economics, though it is quite difficult to grasp concretely. It is defined by the model: RER = e(P/P*), where 'e' is the exchange rate, as the number of foreign currency units per home currency unit; where P is the price level of the home country; and where P* is the foreign price level.
What is it?
On the FOREX exchange you can buy and sell currencies. For example, you might buy Japanese yens (by exchanging them to the dollars you had), then, after yen / dollar ratio goes up, you sell yens and buy dollars again. At the end of this operation you are going to have more dollars, then you had at the beginning.
The FOREX market has much higher liquidity, then the stock market, as much more money are being exchanged. Also, it does not have "exchange places", like stock market does. FOREX is spread between banks all over the world, and as the result, it is open 24 hours, during the business week.
Unlike stocks, FOREX trades are performed with high leverage, usually it is 100. It means that by investing $1000 you can control $100,000, and increase potential profits accordingly. Some brokers provide also so called mini-FOREX, where the size of minimum deposit equals $100. It makes possible for individuals to enter this market easily.
Important note: Trader software comes with indicators, that are configured to assume margin (leverage) equal 1 stock operations and 100 for FOREX.
The name convention. In FOREX, the name of a "symbol" is composed of two parts - one for first currency, and another for the second currency. For example, the symbol usdjpy stands for US dollars (usd) to Japanese yen (jpy).
As with stocks, you can apply tools of the technical analysis to FOREX charts. Trader's indexes can be optimized for FOREX "symbols", allowing you to find winning strategy.
