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A basic introduction to forex trading

A basic introduction to forex trading, with a quick reading you can have an idea about various tools and terms used in Forex and it will provide you how and what to expect out of forex trading

A basic introduction to forex trading

Forex is the way to earn money by utilizing the market situation. 

Let's start with put and call concept. Put for any commodity can be exercised if the market price is below the strike prices. And when we talk about call option it can be exercised only when the market price is higher than the strike prices. There is a nominal charge for making such investment and it's all speculative as it's based on the market movement of the security. It requires deep knowledge and one needs to understand the strategies as well as currency swap ratios. It’s a whole new world beyond strategic financial management. Two terms will be used in the coming article one is Spot, it means the rate of currency today and Future, it means the rate after a fixed period of time can be a month, 91days, 3 months, 6months or a year. We have three studies to be discussed in portfolio 

PURCHASE PARITY ASSUMPTION This includes the price for the same commodity in two different market or economy to get the currency exchanges. Let's understand with a simple example of a tea. The price for a tea in India is rupees 5 and in London is $5 so according to PPA 1rupee=1$ and this is not possible at least in coming 15 years. So this assumption is way apart from the real thing but to learn the basics we need to see the roots. 

FORWARD CONTRACT This is realistic and we do use it the most. You know betting, we bet on a situation either we gain or we lose. So, for a currency, we bet that in future it will be 10% increase and if it does increase then you'll be benefited else you'll have to bear the loss. In the forex market, forward contracts are the most useful tool to convert the present loss into a future benefit and one thing for sure forget about the borrowing rate.


Forex Trading
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