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Chapter 1, Part II. What is a trading object in the FOREX market?

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Feb 23, 2011.

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  1. Administrator

    Administrator Just Administrator :-)

    Sep 24, 2007
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    Commander in Pips: Ok, troops, who can answer me this one simple question?

    Pipruit: Well, we’ve just investigated that the FOREX is a money market, so I assume that the trading object of the market is MONEY.​

    Commander in Pips: That’s right son.

    Pipruit: But I do not quite understand one thing. The point is that if we want to buy something, we should pay money for it. And here, on FOREX, we should pay money for purchasing the same money. I’m confused a bit.​

    Commander in Pips: Well, I’ll try to help you. You just have said: “we should pay money for purchasing the same money”. But this is not quite correct. You pay money, yes, but purchasing not the same but different money.

    Pipruit: Hm…​

    Commander in Pips: You never buy on the FOREX market US dollars for US dollars, because this transaction makes no sense. It’s the same like you come to your fellow once and tell him – say, let’s change – I’ll give you 5 bucks for your 5 bucks. He may think that you’ve gone nuts. But if your friend has some different money, like Japanese Yen left over from his recent trip to Japan, this will be quite different story…

    Pipruit: Oh! I think I’ve got it. It makes sense to trade currency of different countries with each other, but not a currency with itself, because the exchange rate of a currency with itself never changes.

    Commander in Pips: Right you are.

    Pipruit: But what is the economic basis for this, why are rates changing all the time?

    Commander in Pips: Well, as you know, currency is the blood of the national economy of a country. It means that the rate of currency relative to other currencies depends on the fiscal health and perspectives of each country. This fact explains why currencies rates fluctuate all the time.
    #1 Administrator, Feb 23, 2011
    Lasted edited by : Jan 31, 2016
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