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In the Forex trading system there are a few basic rules. first you must know
that currency trading is conducted in pairs. In addition to that fact, trades
are the consequence of selling one currency and buying another at the same
moment. The base currency is the "basis" for the buy/sell. Meaning, the currency
pair is an entity which can be sold or purchased.
The first in order currency of the pair is the base currency
The second in
order is the quote currency, some might call it the counter currency (Belgians
or English). The US currency is generally the base currency and dominates in
this aspect. For example: USD/JPY, USD/CAD and USD/CHF. However, the British
Pound, the Euro and Australian Dollar are examples of other, less prevalent base
currencies. There is the presence of a "bid" and "ask" in foreign currency trading
just like other
areas of finance - When a trader wants to buy the base currency in exchange for the quote currency,
the price the trader proposes is the bid. If the trader wishes to sell the base
currency in exchange for the quote currency, "ask" is the price he will sell the
base currency for. The numeral difference between the bid and ask is called a
spread. We've just begun. Get yourself another bourbon, my friend.
When a trader decides to postpone an exchange to a further date
Which would
imply a different foreign currency trading values as well, obviously, it is called a rollover.
The rollover cost depends on the interest rate difference between the currencies
you're exchanging. Everything is dependent on your position in the market. If
you've got an open position at 5pm EST, you will either profit or have to pay
the daily interest rate. If you don't want to pay interest or earn, you need to
close all your positions by the end of the trading day, which is 5pm. You need
to focus and organize yourself daily so that you know what positions are left
open and exactly how you'd like to maintain them.
The rollover interest fees are an inherent part of the foreign
currency trading
Since traders need to lend and borrow currencies in order to buy and sell. When
you borrow a currency you pay the interest and when you buy a currency you earn
the interest. According to this logic, if the interest rate of the currency the
trader is buying is higher than the rate of the one he's borrowing, he will
collect a handsome sum. this is, however, on condition that the trader is on at
least a 2% margin. |
