PipStory

Forex is abbreviation of “foreign exchange”. The Forex trading market is the only market where currencies of nations are bought and sold round the clock. The Forex market was dominated by large institutions like banks and brokerage firms for several years. But from last few years, Forex market had experienced a major change because of growing numbers of private investors and traders.

Here are some interesting facts about Forex trading:

• According to Howard Abell, the Forex trading system is the system which gives the trader ability to control his or her emotional states instead of allowing him to control them. A Forex trading system is a disciplined method for organizing dynamic, ever-changing market phenomena.
• Most liquid market in the world is Forex market, thus making is easy to trade most currencies.
• There are no commissions on the Forex deals which you make, unlike equities or future traders. Read the full story

Forex trading is a direct access to trade of different types of foreign currencies all at once. In the ancient times foreign exchange was only for large banks and companies who have huge money to invest in. Still recent technological up gradations have made it so that small traders can also take benefits of the forex trade by utilizing the different online trading place to exchange.

Currencies rates vary all around the world and they are always exchanged in pairs. 85% percent of all day transaction includes trade in major currencies. Four main currencies normally used for investment purposes. They are: Euro against US dollar (EUR/USD), US dollar against Japanese yen (USD/JPY), British pound against US dollar (GBP/USD) and US dollar against Swiss franc (USD/CHF).

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In finance, the smallest price change that a given exchange rate can make is referred to as percentage in point also known as pip or point. Since most major currency pairs are priced to four decimal places, so the smallest change is the change in the last decimal point, for most of the currency pairs this is the equivalent of 1/100 of one percent, or one basis point.

Some additional information is needed in order to calculate the pip value or to know that how much is one pip, this information includes: trading size, leverage used, and the actual rate of that particular pair for which you want to calculate the value of pip. For instance, in case of US Dollar, having the trading volume of 1 lot (generally it is equal to 100,000 units of the base currency), 10 USD will be the minimum fluctuation point.

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Foreign exchange reserves (also referred to as Forex reserves) in a strict sense are only the foreign currency deposits and bonds that are held by central banks and monetary authorities. However, commonly foreign exchange and gold, SDRs and IMF reserve positions are included in the term in popular usage.

This broader figure is more readily available, but more accurately it is referred to as official international reserves or international reserves. These are assets of the central bank that the central bank holds in different reserve currencies, mostly in the US dollar, and to a lesser extent in the euro, the UK pound, and the Japanese yen, and it is used to back its liabilities, e.g. the local currency issued, and the various bank reserves that are deposited with the central bank, by the government or financial institutions.

History

Official international reserves, that were the means of official international payments, formerly consisted only of gold, and occasionally silver. But under the Bretton Woods system, the US dollar functioned as a reserve currency, so the US dollar also became part of a nation’s official international reserve assets. From 1944-1968, through the Federal Reserve System the US dollar was convertible into gold, but after 1968 only central banks were able to convert dollars into gold from official gold reserves, and after 1973 no individual or institution has the permission to convert US dollars into gold from official gold reserves.

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