Chapter 1, Part III. How are currencies traded in the FOREX market? Page 2

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

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1. Sive Morten Special Consultant to the FPA

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Commander in Pips: Outstanding! That’s an excellent association. I see that you’re starting to have a real knack for all this stuff.

Now to your second question about “all possible pairs”. Here are three currencies – GBP, USD and EUR. How many pairs can you create with them?

Pipruit: Let’s see… we already know pairs like USD/USD or EUR/EUR do not make any sense, so I suppose that we can create only three pairs – EUR/USD, GBP/USD and EUR/GBP. Also we can make reverse pairs, such as USD/EUR, for example, but this will be the same pair as EUR/USD. The only difference will be that it will show how many Euros I should pay for 1 buck, instead of initially how much bucks I should pay for 1 EUR. If, for example EUR/USD rate is 1.35, then USD/EUR is 1/1.35 or about 0.74. It means that I should pay about 0.74 EUR for 1 buck.​

Commander in Pips: Very good! Indeed, FOREX does not have both EUR/USD and USD/EUR pairs simultaneously. This is because they are, in fact, identical. Ok, let’s add one more currency, say, CAD. What pairs can you create now?

Commander in Pips: Right you are. So, do you understand now, what I mean with “all possible pairs”?
Pipruit: Yes sir, now it looks clear. But how many pairs exist in total? And are there any differences with trading them?​

Commander in Pips: There are a lot of pairs. Generally speaking, all pairs can be put into one of three groups – Majors, Crosses and Exotic.

Pipruit: Yes, we’ve talked about Majors previously. They are USD, EUR, GBP, CAD, JPY, AUD and NZD.​

Commander in Pips: Not quite. We’ve talked about “Major currencies” and now we’re discussing “Major pairs”. It’s not exactly the same.

Pipruit: What’s the difference, sir?​

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Lasted edited by : Feb 1, 2016