Currencies are traded in dollar amounts known as “lots”. 1 lot is equal to $1,000, which controls $100,000 in currency. This is what is recognized as the “margin”. You can handle $100,000 worth of currency for only 1,000 dollars. This is what is known as “Higher Leverage”.
Currencies are constantly traded in pairs in the FOREX. The pairs have a distinctive notation that expresses what currencies are becoming traded. The symbol for a currency pair will constantly be in the type ABC/DEF. ABC/DEF is not a genuine currency pair, it is an instance of a symbol for a currency pair. In this instance ABC is the symbol for 1 nations currency and DEF is the symbol for yet another nations currency.
Right here are some of the widespread symbols utilized in the Forex:
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 other currencies as effectively, but these are the most frequently traded ones.
A currency can under no circumstances be traded by itself. So you can not ever trade a EUR by itself. You constantly will need to examine 1 currency with yet another currency to make a trade doable.
Some of the widespread PAIRS are:
EUR/USD Euro / US Dollar
USD/JPY US Dollar / Japanese Yen
GBP/USD British Pound / US Dollar
USD/CAD US Dollar / Canadian Dollar
AUD/USD Australian Dollar/US Dollar
USD/CHF US Dollar / Swiss Franc
EUR/JPY Euro / Japanese Yen
The listed currency pairs above appear like a fraction. The numerator (major of the fraction or “left” of the / nonetheless you want to SEE it) is known as the base currency. The denominator (bottom of the fraction or “ideal” of the /nonetheless you want to SEE it) is known as the counter currency. When you location an order to get the EUR/USD, for instance, you are basically getting the EUR and promoting the USD. If you had been to sell the pair, you would be promoting the EUR and getting the USD. So if you get or sell a currency PAIR, you are getting/promoting the base currency. You are constantly undertaking the opposite of what you did with to base currency with the counter currency.
If this appears confusing then you are in luck. You can constantly get by with just pondering of the complete pair as 1 item. Then you are just getting or promoting that 1 item. Considering like this will nonetheless allow you to location trades. You only will need to be conscious of the base/counter notion for Basic Evaluation problems.
So why is it crucial to know about the base/counter currency? The base/counter currency notion illustrates what is basically taking location in a Forex transaction. Some of you reading this, know that brief-promoting was restricted in the stock market place *(Quick-promoting is exactly where you sell a stock/currency/solution/commodity 1st and then attempt to get it back at a reduce price tag later). But in the FOREX you are constantly getting 1 currency (base) and promoting yet another (counter). If you sell the pair you are merely flipping which 1 you get and which 1 you sell. The transaction is basically the similar. This enables you to brief-sell with no restrictions.
You want to be capable to brief-sell with no restrictions so you can make cash when the market place drops as effectively as when it rises. The difficulty with regular stock market place trading is that the market place has to go up for you to make cash. With FOREX trading you can make cash in all directions.