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Break Into Forex In 12 Steps Learning to trade in the Forex market can seem like a daunting task when you’re first starting out, but it is not impossible. Here we will cover the preliminary steps you need to take to find your footing in the FX market.
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In no specific order, the eight currencies every currency trader should know are the U.S. Dollar (USD) or "greenback", British Pound (GBP) or "cable", Japanese Yen (JPY), European Euro (EUR), Swiss FrancCanadian Dollar (CAD) or "loonie", and the Australian/New Zealand Dollar (AUD/NZD). Currencies must be traded in pairs, and there are 18 different currency pairs that are conventionally quoted by forex market makers, including USD/CAD, EUR/USD, USD/CHF, AUD/USD, GBP/USD, NZD/USD, and USD/JPY.
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Yield Drives Return In every fx transaction, you are simultaneously buying one currency and selling another. Since every currency in the world is attached with an interest rate set by the central bank of that currency’s country, you are obligated to pay the interest on the currency that you have sold, but you also have the privilege of earning interest on the currency that you have bought. For example, assume that New Zealand has an interest rate of 8% (800 basis points) and that Japan has an interest rate of 0.5% (50 basis points). If you decide to go long NZD/JPY, you will earn 800 basis points in annualized interest, but have to pay 50 basis points for a net return of 7.5% or 750 basis points. Forex in