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Chapter 1, Part III. How are currencies traded in the FOREX market?

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Feb 25, 2011.

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  1. Administrator

    Administrator Just Administrator :-)

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    Commander in Pips: Well, the whole system of quoting prices is very simple. Currencies are traded in pairs. All possible pairs have already been created and available for trading. Other words, you will trade not a separate currency, but the pair and the quote is an exchange rate one currency to another.

    Pipruit: Wait a minute, what do you mean by “in pairs” and by “all possible pairs”?​

    Commander in Pips: Ok, imagine looking at a bank’s currency exchange center. What do you see on a quote board?

    Pipruit: Yesterday, I remember seeing something like this:​

    Currency We Buy at We Sell at
    1 EUR 1.35 USD 1.37 USD
    1 GBP 1.65 USD 1.67 USD
    Commander in Pips: For simplicity, let’s skip separate quoting for buy and sell (we will talk about it a bit later), and use just the first column - what does it mean?

    Currency USD
    1 EUR 1.35
    1 GBP 1.65
    Pipruit: Oh, it’s quite simple – I can exchange 1 GBP for 1.65 USD and 1 EUR for 1.35 USD
    Commander in Pips: So that is the answer – GBP/USD and EUR/USD are currency pairs. When you make a transaction on FOREX you’re simultaneously buying one currency and selling another. For example, buying EUR/USD means Buy EUR and Sell USD. The first placed currency shows what are you buying or selling, and second one shows what you’re getting instead. Selling EUR/USD means that you‘re selling EUR and buying, i.e. “getting instead” USD.

    Pipruit: When you’re explaining that, I have an association with pair of scales. On the one scale is the first currency, say EUR, on the other one is USD. And exchanging rate, i.e. equilibrium is fluctuating all the time, based on which currency is getting stronger right now.

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    #1 Administrator, Feb 25, 2011
    Lasted edited by : Feb 1, 2016
    Iaen90, Saleh1980, fajrss and 14 others like this.
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