Forex trading has emerged as a very profitable and lucrative with inherent risk trade market. However in this market the trading is usually done in currencies. Several companies have registered huge profits through forex trading. In simple words forex trade is defined as the buying and selling of the currencies from all over the world by the brokers operating online.

Typically the leverage ranges between 100 to 200 times. Forex trading operates 24*7 and the currencies are usually transacted in pairs. The pairs may typically be of two different currencies such as Euro-Us dollar pair or Canadian dollar-euro pair etc.

Forex trading operates on the purchase and sale of various leading currencies across the world. However people usually invest in currencies that have higher return on investment. The highest paying goose in the currency market are following currencies Euro (EUR), Japanese Yen (JPY),British Pound (GBP),New Zealand Dollar (NZD), US Dollar (USD), Canadian Dollar (CND) and Australian Dollar (AUD). Like the stock exchange rate the transactions in forex exchange take place through forex rate.

For example the forex rate for EUR/USD is 1.31 for 5th Feb, 2012 i.e., if the investor spends 1032 he will get 1000 EUR in return? Now if these rates move to 1.58 in like one year the investor can sell his 1000 EUR and get 1058 dollars in return, thus yielding him $26. Thus the base currency here would be EUR i.e. the currency a buyer is interested to buy, while the counter currency would be USD. Now these fluctuations on huge sum of money yield tremendous returns on investment.

However, at a given point in time the purchase rate or the bid rate is always higher than the selling rate or the ask rate, also known as spread. Thus if an investor does spot transaction of buying followed by immediate selling of particular pair of currency he/she will suffer losses. This inherent difference between the bid/ask rate is called base point or pip which is usually 0.0001 or less.

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