leverage, one lot is equal to $1000 which controls $100,000 of a given
currency. This leverage is known as "margin" and some brokers will
allow traders even higher leverage than 100:1. This superhigh leverage
is one of the reasons that Forex trading has become so popular.
Currencies are always traded in pairs. Each pair has unique notation
that expresses which currencies are being traded. The symbol for a
currency pair will always be in the form ABC/XYZ. ABC/XYZ is not a
real currency pair, just an example of how currency pairs are stated
in the market. In this particular example, ABC is the symbol for one
country's currency and XYZ is the symbol for another country's
currency.
Listed below are some common symbols used. There are symbols for other
currencies as well, but these are the most commonly traded ones.
USD - The US Dollar
EUR - The currency of the European Union "EURO"
GBP - The British Pound
JPN - The Japanese Yen
CHF - The Swiss Franc
AUD - The Australian Dollar
CAD - The Canadian Dollar
As mentioned earlier, currencies are traded in pairs in Forex trading.
Thus, a trade always compares one currency to another in terms of how
the two currency prices will move relative to each other. Some of the
common pairs traded are:
EUR/USD Euro / US Dollar
USD/JPY US Dollar / Japanese Yen
GBP/USD British Pound / US Dollar
USD/CAD US Dollar / Canadian Dollar
AUD/USD Australian Dollar/US Dollar
USD/CHF US Dollar / Swiss Franc
EUR/JPY Euro / Japanese Yen
When you place an order to buy the EUR/USD, you are actually buying
the EUR and selling the USD. If you were to sell the pair, you would
be selling the EUR and buying the USD. So if you buy or sell a
currency pair, you are buying/selling the base currency. You are
always doing the opposite of what you did with to base currency with
the counter currency. In Forex trading, currencies are traded on a
price interest point (know as a "pip")system. Each currency pair has
its own pip value. Since we have a listed currency pair (i.e.,
EUR/USD, EUR/AUD), we need a way to talk about its associated number
or price. When you see a price quote, you'll see something listed like
this:
USD/JPY: 118:51/55
The first component (before the slash) refers to the bid price (what
you obtain in JPY when you sell USD). In this example, the bid price
is 118.51. The second component (after the slash) is used to obtain
the ask price (what you have to pay in JPY if you buy USD). In this
example, the ask price is 118.55. The difference between the bid and
the ask price is referred to as the spread. In the example above, the
spread is .04 or 4 pips.
Chuck Cox is a Technical Writer and Industrial Scientist by
professional with a background in statistics. He has used mathematical
and statistical methods to invest and trade in the stock, futures, and
options markets. Chuck has owned various businesses and presently
operates several websites. To learn more about trading the markets,
visit his website,
http://www.earncashathometoday.com/trading-FOREX.htm
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