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The Seven Most Traded Currencies in FOREX.
Currencies are traded in dollar amounts called "lots". One lot
is equal to $1,000, which controls $100,000 in currency. This is
what is known as the "margin". You can control $100,000 worth of
currency for only 1,000 dollars. This is what is called "High
Leverage".
Currencies are always traded in pairs in the FOREX. The pairs
have a unique notation that expresses what currencies are being
traded. The symbol for a currency pair will always be in the form
ABC/DEF. ABC/DEF is not a real currency pair, it is an example of
a symbol for a currency pair. In this example ABC is the symbol
for one countries currency and DEF is the symbol for another
countries currency.
Here are some of the common symbols used in the Forex:
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
There are symbols for other currencies as well, but these are
the most commonly traded ones.
A currency can never be traded by itself. So you can not ever
trade a EUR by itself. You always need to compare one currency
with another currency to make a trade possible.
Some of the common PAIRS are:
EUR/USD Euro / US Dollar
"Euro"
USD/JPY US Dollar / Japanese Yen
"Dollar Yen"
GBP/USD British Pound / US Dollar
"Cable"
USD/CAD US Dollar / Canadian Dollar
"Dollar Canada"
AUD/USD Australian Dollar/US Dollar
"Aussie Dollar"
USD/CHF US Dollar / Swiss Franc
"Swissy"
EUR/JPY Euro / Japanese Yen
"Euro Yen"
The listed currency pairs above look like a fraction. The
numerator (top of the fraction or "left" of the / however you
want to SEE it) is called the base currency. The denominator
(bottom of the fraction or "right" of the /however you want to
SEE it) is called the counter currency. When you place an order
to buy the EUR/USD, for instance, 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.
If this seems confusing then you're in luck. You can always
get by with just thinking of the entire pair as one item. Then
you are just buying or selling that one item. Thinking like this
will still enable you to place trades. You only need to be aware
of the base/counter concept for Fundamental Analysis issues.
So why is it important to know about the base/counter
currency? The base/counter currency concept illustrates what is
actually taking place in a Forex transaction. Some of you reading
this, know that short-selling was restricted in the stock market
*(Short-selling is where you sell a
stock/currency/option/commodity first and then try to buy it back
at a lower price later). But in the FOREX you are always buying
one currency (base) and selling another (counter). If you sell
the pair you are simply flipping which one you buy and which one
you sell. The transaction is essentially the same. This allows
you to short-sell with no restrictions.
You want to be able to short-sell with no restrictions so you
can make money when the market drops as well as when it rises.
The problem with traditional stock market trading is that the
market has to go up for you to make money. With FOREX trading you
can make money in all directions.
http://www.1-forex.com
Omar Vargas; FOREX Trader and Freelance writer.
http://www.1-forex.com
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