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Chapter 5, Part I. Where does the money come from in FOREX? Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Commander in Pips: Well, the money does not disappear. It becomes a profit of your counterparty in this trade. Money does not disappear anywhere and does not appear from nowhere. It is always on the market, and just changes hands. That’s all.

    Pipruit: Ok, I remember that. Besides, we’ve discussed this lightly in Introduction to FPA Forex Military School.​

    Commander in Pips: Ok then. Now we can say that any exchange rate just shows the price of one currency in terms of paying for it in another currency. It is simply the ratio of value of one currency to another.

    Pipruit: Why in different pairs does US dollar change from being first turn or move into second place. For example, EUR/USD compares to USD/JPY. What is the reason for this?​

    Commander in Pips: Well, the placement of USD in pair was historically based. There is no hidden pattern in it. I just can tell you that in the currency futures market pairs such as JPY/USD, CHF/USD exist, compared to USD/JPY and USD/CHF that we have on FOREX.

    The second part of your question is much more important. And here is the rule: the primary placed currency that stands before the slash (/) calls “Base Currency”, the secondary, placed after the slash, one calls “currency payable, quote currency or counter currency”. Both currencies have different functions.

    [​IMG]

    Important note:
    According to ISO 4217 international three-letter code of the currencies involved. It means that each currency pair constitutes as an individual trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY. The first currency (XXX) is the base currency that is quoted relative to the second currency (YYY), called the counter currency (or quote currency). Historically, the base currency was the stronger currency at the creation of the pair. However, when the EUR was created, the European Central Bank mandated that it always be the base currency in any pairing.
     
    #1 Sive Morten, Dec 14, 2013
    Lasted edited by : Feb 7, 2016
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