Forex Currency Trading Explained

FX or Forex, currency trading is the trading of one currency against another. In currency trading, these codes are often used to express which specific currencies make up a currency pair. Buying (“going long”) the currency pair implies buying the first, base currency and selling an equivalent amount of the second, quote currency (to pay for the base currency). A trader buys a currency pair if he/she believes the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up.

Forex trading in simplest terms is the buying of one currency and the selling of another. It is a 24-hour market enabling it to accommodate constant changing world currency exchange rates.

FOREX MARKET HOURS
At 7:00 pm Sunday, New York time, trading begins as markets open in Tokyo, Japan. By 4:00 am, the European markets are in full swing, and Asia has concluded their trading day.

Buying (“going long”) the currency pair implies buying the first, base currency and selling an equivalent amount of the second, quote currency (to pay for the base currency). It is not necessary to own the quote currency prior to selling, as it is sold short. A trader buys a currency pair if he/she believes the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up.

(one pip, with proper decimal placement/ currency exchange rate) x (Notional Amount).

SPOT FOREX.
Spot foreign exchange is always traded as one currency in relation to another. That is, buy and sell euros US dollars.

(.0001/.8942) x EUR 10,000 = EUR 1.1183.

Trading volume has been growing at a rate of 25 % per year since the mid-1980s and therefore it is not difficult to accept the notion that the currency options is the world \’s fastest growing industry. What used to require days to accomplish in Europe or Asia now only takes a few minutes. Needless to say, technology has changed everything and millions of Dollars are moved from one currency into another every second of every day by major banks through computers and for the average investor, with the touch of a phone.

EUR/USD: 1 pip = $1.00 (.8941 to.8942 is worth $1.00 per 10,000 Euros).

Using EUR/USD as an example, we have:.

The most commonly traded currency pair is EUR/USD.

Spread.
The spread is the difference between the price that you can sell currency at (Bid) and the price you can buy currency at (Ask). The spread on majors is usually 3 pips under normal market conditions.

CURRENCY TRADING: BUYING AND SELLING CURRENCIES.
All Forex trades result in the buying of one currency and the selling of another (currency trading), simultaneously.

GBP/USD: 1 pip = $1.00 (1.4765 to 1.4766 is worth $1.00 per 10,000 Pounds).

(.01/ 130.46) x USD 10,000 = $0.77 or 77 cents per pip.

All times are quoted in Eastern Standard Time (New York).

Currencies are traded for hedging and speculative purposes. Various market participants such as corporations, institutions, and individuals trade forex for one or both reasons.

Foreign exchange is the backbone of all international capital transactions. Compared to the slim profit margins rendered in other areas of commercial banking, huge profits are generally produced in a matter of minutes from minor currency options market movements. Some banks generate up to 60 % of their profits from trading currency aggressively.

Forex is the backbone of all international capital transactions. Compared to the slim profit margins rendered in other areas of commercial banking, huge profits are generally produced in a matter of minutes form minor currency market movements. Some banks generate 60 % of their profits from trading currency aggressively.

Corporate treasurers, private individuals and investors have currency exposures during the the regular course of business. The FXTrade Platform is an ideal platform to hedge any such exposure. An investor, who has bought a European stock and expects the EUR exchange rate to decline, can hedge his currency exposure by selling the EUR against the USD.

Trading volume has been growing at a rate of 25 % per year since the mid-1980s and therefore it is not difficult to accept the notion that the currency market is one of the world fastest growing industries. What used to require days to accomplish in Europe or Asia now oly takes a few minutes. Needless to say, technology has changed everything and millions of Dollars are moved from one currency into another every second of every day by major banks through computers and for the average investor, with the touch of a computer key.

USD/JPY: 1 pip = $.77 (i.e. a change from 130.45 to 130.46 is worth about $.77 per $10,000).

FOREX BASICS – What’s a PIP.
A “pip” is the smallest increment in any currency pair. In EUR/USD, a movement from.8951 to.8952 is one pip, so a pip is.0001. In USD/JPY, a movement from 130.45 to 130.46 is one pip, so a pip is.01.

The most commonly traded currencies are: USD, EUR, JPY, GBP, CHF, CAD and AUD.

Transactions in foreign currencies take place when one country’s currency is purchased (exchanged) with another country’s currency.

USD/CHF: 1 pip = $.59 (1.6855 to 1.6866 is worth $.59 per $10,000).

FOREX or The Foreign exchange rate market is an international market where various currency exchange transactions take place; this is in the shape of simultaneously buying one currency and selling another. The Forex system in operation today was established in the 1970s when free currency exchange rates were introduced, this period also saw the US Dollar overtake the British Pound as the benchmark currency.

An open trade or position is one in which a trader has either sold or bought one currency pair and has not sold or bought back an adequate amount of that currency pair to effectively close the trade. When a trader has an open trade or position, he/she stands to lose or profit from fluctuations in the price of that currency pair.

What does it mean to be “long” or “short” a currency?
Being long means buying a currency. Being short means selling a currency.
He or she buys US Dollars and sells Japanese Yen if a trader goes long USD/JPY. Buying a currency is synonymous with taking a long position in that currency. If he or she believes it will appreciate in value, a trader takes a long position in a currency.
He or she sells US Dollars and buys Japanese Yen if a trader goes short USD/JPY. Selling a currency is synonymous with shorting that currency. If he or she believes it will depreciate in value, a trader would short a currency.

Market Hours.
The spot Forex market is unique to any other market in the world; trading 24-hours a day. Somewhere around the world a financial center is open for business and banks and other institutions exchange currencies every hour of the day and night, only stopping briefly on the weekend. Foreign exchange markets follow the sun around the world, giving traders the flexibility of determining their trading day and the ability to take advantage of global economic events.

Forex Symbol Guide
Symbol Currency Pair Trading Terminology
GBP/USD British Pound/ US Dollar “Cable”.
EUR/USD Euro/ US Dollar “Euro”.
USD/JPY US Dollar/ Japanese Yen “Dollar Yen”.
USD/CHF US Dollar/ Swiss Franc “Dollar Swiss”, or “Swissy”.
USD/CAD US Dollar/ Canadian Dollar “Dollar Canada”.
AUD/USD Australian Dollar/ US Dollar “Aussie Dollar”.
EUR/GBP Euro/ British Pound “Euro Sterling”.
EUR/JPY Euro/ Japanese Yen “Euro Yen”.
EUR/CHF Euro/ Swiss Franc “Euro Swiss”.
GBP/CHF British Pound/ Swiss Franc “Sterling Swiss”.
GBP/JPY British Pound/ Japanese Yen “Sterling Yen”.
CHF/JPY Swiss Franc/ Japanese Yen “Swiss Yen”.
NZD/USD New Zealand Dollar/ US Dollar “New Zealand Dollar” or “Kiwi”.
USD/ZAR US Dollar/ South African Rand “Dollar Zar” or “South African Rand”.
GLD/USD Spot Gold “Gold”.
SLV/USD Spot Silver “Silver”.

FX or Forex, currency trading is the trading of one currency against another. In terms of trading volume, the currency exchange market is the world’s largest market, with daily trading volumes in excess of $1.5 trillion US dollars.

Using USD/JPY as an example, this yields:.

CALCULATING THE WORTH OF A PIP.
How much is one pip worth per 10,000 Dollars in USD/JPY? We will refer to the size, in this case 10,000 units of the base currency, as the “Notional Amount”.

Selling (“going short”) the currency pair implies selling the first, base currency, and buying the second, quote currency. A trader sells a currency pair if he/she believes the base currency will go down relative to the quote currency, or equivalently, that the quote currency will go up relative to the base currency.

Approximate pip values for the major currencies are as follows, per 10,000 units of the base currency:.

Currency markets are ideally suited for speculative trading. Unlike equity trading, where restrictions limit a trader’s ability to profit from a market down turn, there are no such constraints on currency trading. Currency traders can take advantage of both up and down trends thus increasing their profit potential.

CURRENCY PAIRS.
All currencies are assigned an International Standards Organization (ISO) code abbreviation. In currency trading, these codes are often used to express which specific currencies make up a currency pair. USD/JPY refers to two currencies: the US Dollar and the Japanese Yen.

We want the pip value in USD, so we then must multiply EUR 1.1183 x (EUR/USD exchange rate): EUR 1.1183 x. 8942 = $1.00.

This is in fact a phenomenon you will see with any currency in which the currency is quoted first (such as EUR/USD or GBP/USD): the pip value is always $1.00 per 10,000 currency units. This is why pip (or “tick”) values in currency futures, where the currency is quoted first, are always fixed.

Unlike trading on the stock market, the forex market is not conducted by a central exchange, but on the “interbank” market, which is thought of as an OTC (over the counter) market. This worldwide distribution of trading centres means that the forex market is a 24-hour market.

When one country’s currency is purchased (exchanged) with another country’s currency, transactions in foreign currencies take place. The price agreed upon or negotiated for the currency purchased is referred to as the foreign exchange rate. Major commercial banks in the money market centers throughout the world are responsible for the majority of foreign currencies sold and bought.
Trading Foreign Exchange, Commodity Futures, Options and other Over-the-Counter Products on Margin Carries a High level of Risk and May Not Be Suitable For All Investors.


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