Like any business unit, FOREX trading is carried out by investors to earn profits from the moving market. The main purpose of the market is to buy or sell currencies and earn profit from the transaction. By large currencies that have strong value are traded in the market. The United States Dollar (USD), the Euro (EUR), New Zealand (NZD), Australian Dollar (AUD), Japanese Yen (JPY), Swiss Franc (CHF) and Canadian Dollar (CAD) are the most widely traded currencies. Below is a small example that illustrates a trade activity
Desired Currency Pair: USD/JPY
Current Market Price: 103.50/55
Type of Order: Buy Order
Number of lots: 1 lot (1 lot=100,000 units of base currency)
Assume that Trader A decides to buy Japanese yen by selling dollar. In this note Trader A will sell 100,000 units of USD for 103.50 yen. When the market moves to 103.40/45 he intends to buy back the dollar, where Trader A would have earned a spread rate 5 pips on this deal. Depending upon market volatility, traders perform either a buy (going long) or sell (going short) order. Different spread slabs are available for each currency pairs in respect to their demand or supply in the market.