Currency Options: Trading on the Forex

The Forex market has boomed as a new source of income for investors and traders all around the world.  What are the basic ways trades are made on the forex market?  Before actually making transactions, a smart trader needs to understand the basics, or losing money will be more probable than making any.

What types of currency options are available for trading on the forex? 

Currency pairs are the types of trades made on the forex.  A currency pair is the trade of one currency pair to another.  The most frequent currency pairs are

• EUR/USD: Euro
• GPD/USD: Pound
• USD/CAD: Canadian dollar
• USD/JPY: Yen
• USD/CHF: Swiss franc
• AUD/USD: Aussie

An example of how these trades work would be that a trader buys the euro, and at the same time, he or she is selling the USD.  Or if a trader goes short and sells the Aussie, that trader is buying the USD at the same time.  The first currency in each pair is called the base currency; the second is called the counter or quote currency. 

One last important buzz word: a Pip

While trading on the forex, you will undoubtedly come across the term 'pip'.  A pip or percentage in point iis the minimum incremental move that can be made with a currency pair.  For example, a move in EUR/USD from 1.2545 to 1.2560 = 15 pips.  

As you can see, currency options for trading on the forex are quite varied, so it helps to know what types of currency you want to trade.