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Between forex markets, there are technical differences in the manner currencies are being quoted. Foreign exchange is always quoted versus the US dollar in forwards or futures markets. Here, the pricing is done according to how much in terms of US dollars is required to buy a unit of the other currency.

In the spot market, however, there are currencies that are quoted versus the US currency, while in others, the US currency is the one being quoted against them. For these reasons, the forwards-futures market and the spot market will not in all cases be parallel to each other.

In the spot market’s case, the British pound is quoted versus the US currency as GBP/USD. This is how the pair would also be quoted in the forwards and futures markets. So, when the British pound gains versus the US currency in the spot market, the pound will also be gaining against the dollar in the forwards and futures markets.

Usually, in the case of the US dollar and the Japanese yen, the dollar would be quoted versus the yen, so that in the spot market the pair would be quoted as USD/JPY.

In the spot if the quote is 115, this means that on US dollar would buy 115 Japanese yen. In the futures market, however, the quote would be (1/115). This means that a Japanese yen will buy .0087 US dollars. Therefore if the spot rate for USD/JPY would increase, this would certainly mean a decline in the value of the Japanese yen because of the surge of the US currency resulting in the Japanese yen buying less US dollars.

On the other hand, when looking at the exchange rate for the U.S. dollar and the Japanese yen, the former is quoted against the latter. In the spot market, the quote would be 115 for example, which means that one U.S. dollar would buy 115 Japanese yen. In the futures market, it would be quoted as (1/115) or .0087, which means that 1 Japanese yen would buy .0087 U.S. dollars. As such, a rise in the USD/JPY spot rate would equate to a decline in the JPY futures rate because the U.S. dollar would have strengthened against the Japanese yen and therefore one Japanese yen would buy less U.S. dollars.

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A spread is the difference between the bid price and the ask price. In the case of EUR/USD = 1.2500/03, the spread would be 0.0003 or 3 pips or points.

It may seem to the uninitiated that these figures are insignificant, however, in practice even the tiniest amount of change can mean loss or gain involving thousands of dollars - the very reason speculators find forex attractive, since even the minutest price change can mean huge profit.

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The pip, on the other hand, represents the smallest a price can shift in a currency quote. One pip would be written as 0.0001, since currency pairs are usually quoted to the fourth decimal place.

In the case of the Japanese yen, however, one pip would be 0.01, since this currency is quoted to two decimal places only. In most currencies, the trading range per day would be from 100 to 150 pips.

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Bid and Ask are common in financial markets. When you trade a currency pair it always comes with a bid price, meaning buy, as well as an ask price, meaning sell - in reference to the base currency.

When you purchase a currency pair (going long), the ask price pertains to the amount of quoted currency that will be paid in for the purpose of buying a unit of the base currency, or how much the will be the base currency’s selling price in the market vis a vis the quoted currency.

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When one sells a currency pair (going short), the bid price is used and reflects how much of the quoted currency will be exchanged for one unit of the base currency, or the market value of the quoted currency in relation to the base currency.

If for example you are presented with this USD/CAD = 1.2000/05, the quote before the slash is the bid price, and the number after the slash is the ask price.

Note that only the full price’s last two digits of are usually quoted, and that that the bid price is in all cases smaller than the ask price.

Based on the example given above, the Bid would be represented as Bid = 1.2000, while the Ask would be Ask = 1.2005.

If you intend to purchase this currency pair, this means that you are buying the base currency and are checking the ask price if how much in Canadian currency the market will exchange for US dollars. Based on the ask price, you can buy a US dollar for 1.2005 Canadian dollars.

Conversely, if you want to sell this currency pair, you should check bid price. It tells you that the market will buy US$1 base currency (remember that you are selling the base currency) for a price equivalent to 1.2000 Canadian dollars, which is the quoted currency.

The base currency is always the object of the transaction - either you buy or sell the base currency.

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A cross currency quote occurs when a quote is given without the US dollar in it. EUR/GBP, EUR/CHF and EUR/JPY are all examples of cross currency pairs that are the most common.

Although, they expand the forex market’s trading possibilities, these currency pairs are not as popular, and therefore not actively traded as compared to those that include the US currency. US currency based pairs are also called majors.

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These currency pairs expand the trading possibilities in the forex market, but it is important to note that they do not have as much of a following (for example, not as actively traded) as pairs that include the U.S. dollar, which also are called the majors.

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There are a couple of ways to quote a currency pair. One is to do it directly and the other, indirectly. A direct currency quote is simply treating the domestic currency as the base currency; whereas in an indirect quote, the domestic currency becomes the quoted currency.

The direct quote will vary the foreign currency, and the quoted, or domestic currency, will be fixed at one unit. On the other hand, in the case of the indirect quote, the domestic currency will be variable, while the foreign currency will have a value of one unit.

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Most currencies are traded with the US dollar as the base currency. Therefore if the US dollar and the Japanese yen pair is quoted as USD/JPY, you know that it is a direct quote.

However, the US dollar is not always treated as base currency. Those currencies that had a historical tie with Great Britain, like the British pound, Australian and New Zealand dollars are all quoted as the base currency versus the US currency.

In the case of the euro/dollar pair, the dollar becomes the counter currency and is treated as an indirect quote.

In most cases currency exchange rates are quoted up to the fourth decimal place, except the Japanese yen (JPY), which is only up to two decimal places.

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To a forex newbie, one of the greatest source of confusion is the standard for quoting currencies.

Quoting a currency is always done in pairs, meaning it is always in relation to another currency, so that we can gauge the value of one currency based on the other’s value. So, in order to determine the exchange rate between the US dollar (USD) against the Japanese yen (JPY), the quote would appear like this: USD/JPY = 119.50.

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This is what traders call a currency pair.

The currency on the left is the base currency, and the other on the right is the quote or counter currency. The base currency should always be equal to one unit, e.g. US$1, while the quoted currency should have a value of what it is equivalent to in relation to the base currency. The quote means that US$1 can buy 119.50 Japanese yen.

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The stop loss or stop order as the name implies is refers to a particular point in forex trading where you inform your broker to take you out of the market when things aren’t going the way you expected.

Let’s take the EUR/USD pair for example. If you were placing an entry order, and would want to buy at 1.3400 since you are convinced that the market will appreciate when it gets to 1.3400. However, if things didn’t go as anticipated and the market instead went down, you tell your broker, with the aid of your trading station software, that you want out of the market should it hit 1.3350 - this is a stop loss.

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Although every trader’s aim is to win, you must remember that forex or currency trading isn’t just about winning, but also about minimizing your losses when you made a wrong bet.

Some traders get emotionally tied up in knots so that once they placed the order, they just keep moving the stop loss, which isn’t such a great idea.

Remember that stop loss has only one purpose - to remove you from a bad market, allowing you to save your capital - then you can continue placing more trades.

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Just as with your charting package, your forex trading station should be such that it is the most comfortable part of your profile as a currency trader.

When setting up your forex trading station, you should look for these features:

• The ability to issue “Entry Orders” and a place to openly view them. Entry orders will let you reconsider your trading position in the future, giving you the chance to change your mind;
• a market order. Make sure to disable “one-click” executions. There should at least be two steps before you are allowed to place an order. The last thing you want is placing several orders because you pressed your keyboard keys by mistake.
• an easy way to close trades. This should include a confirmation button and the ability to close multiple trades simultaneously.

There are brokers that will let you trade “both ways,” meaning you can buy and sell the same currency pair simultaneously. If you are allowed by your broker to do this, there is a need for you to close your trades manually. It is not enough just to go the opposite direction of your current trade, because if you do that you will be opening a new position. Use the close or exit button.

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Good traders - the experienced ones - would test their strategies from time to time on a demo account before actually utilizing them live account. This is simply a matter of common sense.

A lot of traders wonder whether or not opening a demo account holds any real value. They think it’s a waste of time, when they can make good use of their time trading real money. Those who believe the statement above are part of the majority - about 90% - of traders. These people follow the crowd and lose their money.

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Although there are perhaps more than a hundred reasons why a trader shouldn’t jump into live trading right away, there are three vital reasons that should be underscored:

* A demo account is a “free demonstration” by your prospective brokerage company. When they tell you that they’re the best, don’t take their word for it. Now’s your chance to test them out by creating a demo account and see if they’re really as good as they claim to be;
* a demo account will let you understand spreads, leverage, execution speed, trading platform familiarity, generating reports plus many more. Above all, this will give you the chance to see how good or bad your trading skills are; and
* a demo account will make you realize that you won’t make money by simply calling your broker and putting the minimum required amount in live account and watch it grow. Nothing can be further from the truth. The biggest blunder a trader can make is entering the world of forex without enough capital. This will most certainly lead to financial doom.

It is best that you wait a while until you have enough capital to trade. This should be money that isn’t owed or one that will affect your lifestyle.

You should never open a live account unless you have consistently done demo trading for at least a couple of months.

Remember that capital is your lifeblood. Don’t ever lose it. It is better to lose an opportunity than to lose capital.

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Since September 2007, the Federal Reserve has made seven interest-rate cuts that made worse the vicious circle of higher oil prices and a weakening dollar.

This is the opinion of Barclays Capital Inc. as they made a study that correlated oil and the US dollar, and further revealed that the relationship between the two has significantly strengthened since the introduction of the euro in 1999.

According to David Woo, head of currency strategy at Barclays in London, the Federal Reserve’s aggressive monetary policy easing this year is to blame for the recent surge in oil prices.

The Federal Reserve has cut its benchmark overnight rate by 3.25 percentage points to 2 percent. This has been most aggressive easing of monetary-policy in two decades.