Currencies are traded in dollar amounts called "lots". Onelot is equal to $1,000, which controls $100,000 in currency.This is what is known as the "margin". You can control $100,000worth of currency for only 1,000 dollars. This is what is called "High Leverage".
Currencies are always traded in pairs in the FOREX. Thepairs have a unique notation that expresses what currenciesare being traded. The symbol for a currency pair will alwaysbe in the form ABC/DEF. ABC/DEF is not a real currency pair,it is an example of a symbol for a currency pair. In thisexample ABC is the symbol for one countries currency and DEFis the symbol for another countries currency.
Here are some of the common symbols used 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 well, but theseare the most commonly traded ones.
A currency can never be traded by itself. So you can notever trade a EUR by itself. You always need to compare onecurrency with another currency to make a trade possible.
Some of the common PAIRS are:
EUR/USD Euro / US Dollar
"Euro"
USD/JPY US Dollar / Japanese Yen
"Dollar Yen"
GBP/USD British Pound / US Dollar
"Cable"
USD/CAD US Dollar / Canadian Dollar
"Dollar Canada"
AUD/USD Australian Dollar/US Dollar
"Aussie Dollar"
USD/CHF US Dollar / Swiss Franc
"Swissy"
EUR/JPY Euro / Japanese Yen
"Euro Yen"
The listed currency pairs above look like a fraction. Thenumerator (top of the fraction or "left" of the / howeveryou want to SEE it) is called the base currency. Thedenominator (bottom of the fraction or "right" of the/however you want to SEE it) is called the counter currency.When you place an order to buy the EUR/USD, for instance,you are actually buying the EUR and selling the USD. If youwere to sell the pair, you would be selling the EUR andbuying the USD. So if you buy or sell a currency PAIR, youare buying/selling the base currency. You are always doingthe opposite of what you did with to base currency with thecounter currency.
If this seems confusing then you're in luck. You can alwaysget by with just thinking of the entire pair as one item.Then you are just buying or selling that one item. Thinkinglike this will still enable you to place trades. You onlyneed to be aware of the base/counter concept for FundamentalAnalysis issues.
So why is it important to know about the base/countercurrency? The base/counter currency concept illustrateswhat is actually taking place in a Forex transaction. Someof you reading this, know that short-selling was restrictedin the stock market *(Short-selling is where you sell astock/currency/option/commodity first and then try to buy itback at a lower price later). But in the FOREX you arealways buying one currency (base) and selling another(counter). If you sell the pair you are simply flippingwhich one you buy and which one you sell. The transaction isessentially the same. This allows you to short-sell with norestrictions.
You want to be able to short-sell with no restrictions soyou can make money when the market drops as well as when itrises. The problem with traditional stock market trading isthat the market has to go up for you to make money. WithFOREX trading you can make money in all directions.
http://www.1-forex.comOmar Vargas; FOREX Trader and Freelance writer.
http://www.1-forex.com
