Major currencies
US Dollar – The United States dollar is the world’s main currency – a universal measure to evaluate any other currency traded on Forex. All currencies are generally quoted in US dollar terms. Under conditions of international economic and political unrest, the US dollar is the main safe-haven currency, which was proven particularly well during the Southeast Asian crisis of 1997-1998.
As it was indicated, the US dollar became the leading currency toward the end of the Second World War along the Bretton Woods Accord, as the other currencies were virtually pegged against it. The introduction of the Euro in 1999 reduced the dollar’s importance only marginally.
The other major currencies traded against the US dollar are the Euro, Japanese Yen, British Pound and the Swiss Franc.
Euro – The Euro was designed to become the premier currency in trading by simply being quoted in American terms. Like the US dollar, the Euro has a strong international presence stemming from members of the European Monetary Union. The currency remains plagued by unequal growth, high unemployment, and government resistance to structural changes. The pair was also weighed in 1999 and 2000 by outflows from foreign investors, particularly Japanese, who were forced to liquidate their losing investments in euro-denominated assets. Moreover, European money managers rebalanced their portfolios and reduced their Euro exposure as their needs for hedging currency risk in Europe declined.
Japanese Yen – The Japanese Yen is the third most traded currency in the world; it has a much smaller international presence than the US dollar or the Euro. The Yen is very liquid around the world, practically around the clock. The natural demand to trade the Yen concentrated mostly among the Japanese keiretsu, the economic and financial conglomerates. The Yen is much more sensitive to the fortunes of the Nikkei index, the Japanese stock market, and the real estate market.
British Pound – Until the end of the World War II, the Pound was the currency of reference. The currency is heavily traded against the Euro and the US dollar, but has a spotty presence against the other currencies. Prior to the introduction of the Euro, both the Pound benefited from any doubts about the currency convergence. After the introduction of the Euro, Bank of England is attempting to bring the high U.K. rates closer to the lower rates in the Euro zone. The Pound could join the Euro in the early 2000’s, provided that the U.K. referendum is positive.
Swiss Franc – The Swiss Franc is the only currency of a major European country that belongs neither to the European Monetary Union nor the G-7 countries. Although the Swiss economy is relatively small, the Swiss Franc is one of the four major currencies, closely resembling the strength and quality of the Swiss economy and finance. Switzerland had a very close economic relationship with Germany, and thus to the Euro zone. Therefore, in terms of political uncertainty in the East, the Swiss Franc is favored generally over the Euro.
Typically, it is believed that the Swiss Franc is a stable currency. Actually, from a foreign exchange point of view, the Swiss Franc closely resembles the patterns of the Euro, but lacks its liquidity. As the demand for it exceeds supply, the Swiss Franc can be more volatile than the Euro.
The Canadian Dollar and the Australian Dollar are also part of the currencies traded on the Forex market but do not count as being part of the major currencies due to their insufficient volume and circulation. They can only be traded against the US Dollar.
Canadian Dollar - Canada decided to use the dollar instead of a Pound Sterling system because of the ubiquity of Spanish dollars in North America in the 18th century and early 19th century and because of the standardization of the American dollar. The Province of Canada declared that all accounts would be kept in dollars as of January 1, 1858, and ordered the issue of the first official Canadian dollars in the same year. The colonies that would come together in Canadian Confederation progressively adopted a decimal system over the next few years.
Australian Dollar - The Australian Dollar was introduced in February 14, 1966, not only replacing the Australian Pound but also introducing a decimal system. Following the introduction of the Australian Dollar in 1966, the value of the national currency continued to be managed in accord with the Bretton Woods gold standard as it had been since 1954. Essentially the value of the Australian Dollar was managed with reference to gold, although in practice the US dollar was used. In 1983, the Australian government «floated» the Australian dollar, meaning that it no longer managed its value by reference to the US dollar or any other foreign currency. Today the value of the Australian Dollar is managed with almost exclusive reference to domestic measures of value such as the CPI (Consumer Price Index).
Forex Symbol
GBP=British Pound
USD=US Dollar
EUR=Euro
JPY=Japanese Yen
CAD=Canadian Dollar
CHF=Swiss Franc
AUD=Australian Dollar
Ex.: EUR/USD = Euro/US Dollar
Definitions
Pip
Price Interest point (Pip) is the term used in currency market to represent the smallest price increment in a currency. It is often referred to as ticks or points in the market. In EUR/USD, a movement from .9018 to .9019 is one pip. In USD/JPY, a movement from 128.50 to 128.51 is one pip.
Average trading range
EUR/USD=76 PIPS
USD/JPY=105 PIPS
GBP/USD=96 PIPS
USD/CHF=140 PIPS
AVERAGE/TOTAL=104/417 PIPS
Price Interest point (Pip) is the term used in currency market to represent the smallest price increment in a currency. It is often referred to as ticks or points in the market. In EUR/USD, a movement from .9018 to .9019 is one pip. In USD/JPY, a movement from 128.50 to 128.51 is one pip.
Average trading range
EUR/USD=76 PIPS
USD/JPY=105 PIPS
GBP/USD=96 PIPS
USD/CHF=140 PIPS
AVERAGE/TOTAL=104/417 PIPS
Pip Values – according to your trading platform from $7.00 to $10.00 USD.
Pip Spreads – according to your trading platform from 3 to 20 pips.
Volume
The trading volume measures how much “money” is being traded. During some types of news breaks and when the New York’s exchange is open, the volume is obviously higher. The volume indicates us that more things can change. There no real strong correlation for volume, good trades is being developed even when the Forex volume is relatively low.
Buying and Selling short
Buying = term to use when buying a currency pair to open a trade.
Selling short = term to use when selling a currency pair to open a trade.
Both terms, refer to things we do to open a trade.
On the other hand, to exit a trade, you will have to use the terms “selling” and “buying-back”. The term “selling” refers to what we do to exit a trade that initially started by “buying”. The term “buying-back” refers to what we do to exit a trade that initially started by “selling-short”.
Basically the term, “selling-short” can be referred to the futures and commodities market. For instance the mentality of buying a field to plant vegetables that will grow in the future is the same thing than buying a currency and to predict that it will eventually go short.
Bid/Ask Spread
A spread is the difference between the bid and the ask price. The bid price is the price at which you may sell your currency pair for. The ask price is the price at which you must buy the currency pair. The ask price is always higher then the bid price. Profits in the market are made from charging the ask price for a currency pair and buying it from someone else at the bid price.
The bid/ask spread increases when there is uncertainty about what is going to happen in the market.
© 1st Forex Trading Academy
0 comments:
Post a Comment