What Is the Forex and what is traded in forex?
Trading FOREX (Foreign Exchange) or better known as the
Forex (Foreign Exchange) is a type of transaction currency trading (currency)
of a country against another country's currency. With an average daily volume
of U.S. $ 2 trillion, the Forex Market is 46 times larger than all the combined
market shares and therefore called the most liquid market in the world. Market
Forex market is open for 24 hours continuously
How Forex Works?
Trading Forex (Foreign Exchange) is the exchange of one
currency against other currencies in order to make a profit (profit) of the
difference in currency values. For example:
A trader to benefit from the transaction BUY GBP (Great
Britain Pounds / GBP)
What Do Traders Do?
|
Great Britain Pounds (GBP)
|
US Dollars (USD)
|
A trader bought 10,000 pounds in early February 2007 when the price of GBP / USD 1.9800. (Buy GBP / USD)
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+10,000
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-19,800 *
|
The next day, the trader redeem it back 10,000 pounds into U.S. dollars at the price of 2.0000. (Sell GBP / USD)
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-10,000
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+20,000 **
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In this example, the trader earn a gross profit of $ 200.
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0
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+200
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* $ 10,000 x 1.9800 = U.S. $ 19.800
(Traders are buying GBP 10,000 by selling U.S. $ 19,800)
** $ 10,000 x 2.0000 = U.S. $ 20,000
(Trader is selling GBP 10,000 by buying U.S. $ 20,000)
Action
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Meaning
|
Buy EUR/USD
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Buy EUR by selling USD
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Sell EUR/USD
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Sell EUR to buy USD
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Currency Pair (Currency Pair)
Currency (Currency) is always a pair or pairs for each forex
transaction means you buy one currency and simultaneously selling the other
currency. For example rate / exchange rate for the pair GPB / USD is GPB / USD
= 1.8500, meaning that 1 pound GBP is $ 1.85.
Cross Rate is a currency pair (pair) that do not contain the
official currency of a country in which the currency is traded, such as forex
transactions conducted in the U.S. (the official currency is USD). It means
that the currency pair that does not contain a USD cross rate of the USD. An
example is the GBP / JPY, EUR / GBP, etc.. Which does not contain a pair
involving USD and EUR named euro cross as EUR / GBP.
Currency Pair (Pair) consists of 2 different currencies
quote. Currencies are located on the left is the base currency. as an example
of the GBP / USD then the GBP is called base currecy. While the USD is the
quote currency or counter currency.
An example is the quote EUR / USD 1.2500, where EUR as
currecy base and USD as the quote currency. Meaning EUR 1 worth U.S. $ 1.25.
If the quote moves from EUR / USD 1.2500 to EUR / USD
1.2510, then Euromenguat and the U.S. dollar weakened. Vice versa, if the quote
moves from EUR / USD 1.2500 to EUR / USD 1.2490, the euro weakened and U.S.
dollar strengthened
Currency Pair
|
Graph (Chart) Moves
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EUR (base)
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USD (quote)
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EUR/USD
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Up
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Stronger
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Weakened
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EUR/USD
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Down
|
Weakened
|
Stronger
|
If you BUY EUR / USD will mean you buy the base currency
(EUR) and at the same time selling the quote currency (USD). If you SELL EUR /
USD will mean you sell the base currency (EUR) and the same time buying the
quote currency (USD).
Buy EUR / USD -> Buy EUR / USD Sell
Sell EUR / USD -> Sell EUR / Buy USD
Another example:
GBP / USD:
For prediction GBP strengthened against the USD, you can BUY
GBP / USD
For prediction USD strengthened against the GBP, you can
SELL GBP / USD
Pair USD / JPY:
For prediction USD strengthened against the JPY, you can BUY
USD / JPY
For prediction JPY strengthened against the USD, you can do
a SELL USD / JPY
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