Part 4 - Understanding
currency conversion
When you begin
trading on Forex, you have to learn how to convert currencies
and note the difference in values, as well as how currencies
are exchanged between international lines. This means
studying not only domestic market trends and currency values,
but also those of foreign markets.
Working With
Multiple Currencies
Since Forex is the
Foreign Exchange Market, you obviously cannot expect everyone
within the market to trade in U.S. dollars (and why not, you
might ask? – but remember that not everyone covets the U.S.
dollar). With so many variables and volatile currencies
being exchanged, how can you know a good buy or sell when you
see one without complete awareness of the value of foreign
currency?
The first step is
to find a source that will give you a basic idea of the current
exchange rate between your domestic currency and the foreign
currency in question. You should do this as a base
listing for any currency that with which you might become
involved. Of course, this will not be consistent down to
the cent or fraction of a particular currency throughout an
entire business day, but at least you will have your starting
point from which to begin, almost like North on a
compass. Such sources can be found all over the Internet,
as well as through many brokers, both on line and in
person.
Currency
Expression
It is also good to
understand the means be which the currency conversion is
expressed. The comparison is usually made in a ratio
known as the cross-rate. In this configuration, the two
currencies are listed in an XXX/YYY ratio, with the XXX
position referred to as the base currency. The base
currency is usually expressed as a whole number, while the YYY
position is expressed as the decimal that most closely matches
the based currency rate. It is sort of like making
reference to miles per gallon or rotations per minute on a car
– a direct comparison of one to the other in the form of a
ratio.
In the next part
we'll be discussing alittle about "Understanding
statistics".
Click here to read part
5 - Understanding Statistics
| 
