October 31st, 2009 | 
Author: The market is open 24 hours a day, 5 days a week, to accommodate all of the time zones for all of the major players. How can you compare the value of a stock across international lines if the values are expressed in two separate, non-equivalent currencies? And how do you measure gains and losses when conversion rate is constantly changing.
When you begin trading on Forex, you have to learn how to convert currencies and note the difference in values, as well as how currencies are exchanged between international lines. With so many variables and volatile currencies being exchanged, how can you know a good buy or sell when you see one without complete awareness of the value of foreign currency. Of course, this will not be consistent down to the cent or fraction of a particular currency throughout an entire biness day, but at least you will have your starting point from which to begin, almost like North on a compass.
It is sort of like making reference to miles per gallon or rotations per minute on a car - a direct comparison of one to the other in the form of a ratio. The smallest fraction, or decimal, in which a currency can be traded, is called a pip and this is ually the degree to which a cross-rate is expressed.
In one cross-rate expression example, one US dollar may be equivalent to 117.456 Japanese yen. This is becae the exchange rate may vary from 117.456 to 117.423, but not to 119.024.
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In the past, there would have been many more currencies to keep track of (such as the franc, the lira, or the Deutschmark). The same is true in reverse should the value of a foreign currency increase against a US dollar.
Once you are able to discern a base value of each particular currency and its conversion rate against others traded on Forex, you will be able to more closely monitor the change in currency conversion, including its inconsistency and volatility. Will it be a clear, calm day with little activity, or is there a storm brewing with winds of change and uncertainty? How can you tell what will happen with your holdings the following day or even further into the future. In fact, sometimes the best first step to entering the market is to watch shows about it or read the financial sections of the newspaper that detail the trends and expected outcomes.
Volatility, or the tendency for fluctuation that can affect your earnings within the stock market, is typical within a domestic market but even more evident and much stronger on the Foreign Exchange Market. For example, if the U.S. dollar is worth ten units of a foreign currency that is then devalued by ten percent, the U.S. dollar is now equivalent to only nine units of the foreign currency.
The charter of the IMF (International Monetary Fund) assists in prohibiting such occurrences and enforcing the policy. However, what happens when the value of a foreign currency changes due to market fluctuation rather than purposeful reductions or increases by a federal government or federal bank? What effect do appreciation and depreciation have on the stock market.
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