When trading currencies you are trading nn 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" as we discussed in a previous post.
You can control $100,000 worth of currency for only 1,000 dollars. This is what is called “High Leverage” and it can assist you in making HUGE profits when trading FOREX.
Currencies are traded in pairs in the FOREX. The
pairs have a unique code that shows exactly what currencies
are being traded. The symbol for a currency pair will always
be in the format of ABC/DEF. ABC/DEF is not an actual currency pair.
It is used as an example of a symbol for a currency pair. In this
example ABC is the symbol for one currency and DEF
is the symbol for a different countries currency.
Here are some of the Most popular Currencies in FOREX and there respective symbols.
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 many other currencies as well but these are the most commen ones.
A currency can never be traded by itself. You can not
ever trade a EUR by itself. You always need to "pair" one
currency with another currency to make the trade possible.
Here are some of the most traded currency pairs and there "nicknames"
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.
lot is equal to $1,000, which controls $100,000 in currency.
This is what is known as the "margin" as we discussed in a previous post.
You can control $100,000 worth of currency for only 1,000 dollars. This is what is called “High Leverage” and it can assist you in making HUGE profits when trading FOREX.
Currencies are traded in pairs in the FOREX. The
pairs have a unique code that shows exactly what currencies
are being traded. The symbol for a currency pair will always
be in the format of ABC/DEF. ABC/DEF is not an actual currency pair.
It is used as an example of a symbol for a currency pair. In this
example ABC is the symbol for one currency and DEF
is the symbol for a different countries currency.
Here are some of the Most popular Currencies in FOREX and there respective symbols.
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 many other currencies as well but these are the most commen ones.
A currency can never be traded by itself. You can not
ever trade a EUR by itself. You always need to "pair" one
currency with another currency to make the trade possible.
Here are some of the most traded currency pairs and there "nicknames"
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.
