What are you buying?: Nothing is physically exchanged in foreign currency trading as all trades are conducted via computer entry and netted depending on market price. The market is purely speculative. The main reason for the market’s existence is to assist conversion from one currency to the other for International Businesses in need of regular currency trades.
Difference in markets: In terms of futures, options and stocks you trade on a regulated and formal exchanges. Currency trade take place over-the-counter, thus trades are not regulated as strictly as on formal exchanges. No clearing houses are involved meaning that trades are not guaranteed. A credit agreement is the only binding agreement between members.
Traded currency’s: Majority of trades are done in the most liquid currencies pair worldwide which are Euro/US Dollar, British Pound/US Dollar, Dollar/Yen and US Dollar/Swiss Franc. The most popular currency variation pairs are Australian Dollar/US Dollar, New Zealand Dollar and US Dollar/Canadian Dollar. Exotic currencies such as Czech Koruna can also be traded.
Secretive terms: As with other professions, currency traders are proud owners of special gibberish terms to refer to market items or events for example Yards are one billion units, Swissie is Swiss Franc’s, a figure is a round number and sterling is a British Pound.
Smallest movements and times: The smallest movement in foreign currency pricing is known as a pip. In the determination of losses or gains, drops and rises in pips are used as indicators. Just a couple of pips can mean a huge fluctuation. Pip values are different for small and regularly sized accounts being US$ 1 and US$ 10 respectively. The pip difference between bid and asking price is known as spread. Small time lapses between two currencies are known as ticks.
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