SlideShare une entreprise Scribd logo
1  sur  12
Télécharger pour lire hors ligne
Chapter 1.2
Currencies Come in Pairs
                           0
GETTING STARTED                                                                CURRENCIES COME IN PAIRS
You know the advantages of trading forex, and you are excited to start         Everything is relative in the forex market. The euro, by itself, is neither
trading. Now you need to learn what this market is all about. How does         strong nor weak. The same holds true for the U.S. dollar. By itself, it is
it work? What makes currency pairs move up and down? Most                      neither strong nor weak. Only when you compare two currencies
importantly, how can you make money trading forex?                             together can you determine how strong or weak each currency is in
                                                                               relation to the other currency.
Every successful forex investor begins with a solid foundation of
knowledge upon which to build. Let’s start with currency pairs—the             For example, the euro could be getting stronger compared to the U.S.
building blocks of the forex market—and how you will be using them             dollar. However, the euro could also be getting weaker compared to
in your trading.                                                               the British pound at the same time.

In this first section, we will explain the following to get you ready to       Currencies always trade in pairs. You never simply buy the euro or sell
place your first trade:                                                        the U.S. dollar. You trade them as a pair. If you believe the euro is
                                                                               gaining strength compared to the U.S. dollar, you buy euros and sell
What a currency pair is                                                        U.S. dollars at the same time. If you believe the U.S. dollar is gaining
                                                                               strength compared to the euro, you buy U.S. dollars and sell euros at
How you can trade a currency pair
                                                                               the same time. You always buy the stronger currency and sell the
What happens when you trade a currency pair                                    weaker currency.

                                                                               Currency pairs are typically divided into the following three major
                                                                               groups:




                                                                           1
Major currency pairs

Exotic currency pairs                                                         EUR/USD   (Euro / U.S. dollar)

Currency crosses                                                              GBP/USD   (British pound / U.S. dollar)

                                                                              USD/CHF   (U.S. dollar / Swiss franc)

Major Currency Pairs                                                          USD/JPY   (U.S. dollar / Japanese yen)
Most forex investors begin by investing in the major currency pairs, or
the majors. The majors are those currency pairs that are comprised of         USD/CAD   (U.S. dollar / Canadian dollar)
the most important currency in the global markets—the U.S. dollar
                                                                              AUD/USD   (Australian dollar / U.S. dollar)
(USD)—crossed with one of seven other globally significant
currencies—the euro (EUR), the Great British pound (GBP), the Swiss           NZD/USD   (New Zealand dollar / U.S. dollar)
franc (CHF), the Japanese yen (JPY), the Canadian dollar (CAD), the
Australian dollar (AUD) and the New Zealand dollar (NZD).

Take some time to learn the following major currency pairs because
you will most likely be using them extensively:




                                                                          2
Exotic Currency Pairs
The exotic currency pairs, or the exotics, are the currency pairs that are
comprised of the most important currency in the global markets—the               USD/SEK   (U.S. dollar / Swedish krone)
U.S. dollar (USD)—crossed with any currency that is not considered a
major currency. Exotic currencies—like the Swedish krone (SEK), the              USD/NOK   (U.S. dollar / Norwegian krone)
South African rand (ZAR), or the Mexican peso (MXN)—are called
exotic because they are associated with illiquid currencies that might           USD/DKK   (U.S. dollar / Danish krone)
not be available in a standard trading account.
                                                                                 USD/HKD   (U.S. dollar / Hong Kong dollar)
Exotic currencies are usually lightly traded and have large bid/ask
spreads. However, many so-called “exotic” currencies are becoming                USD/ZAR   (U.S. dollar / South African rand)
more popular and more and more investors are trading them.
                                                                                 USD/THB   (U.S. dollar / Thai baht)
Take a look at the following list of exotic currency pairs because you
                                                                                 USD/SGD   (U.S. dollar / Singapore dollar)
may be interested in diversifying your forex portfolio with a few
uncorrelated currency pairs:                                                     USD/MXN   (U.S. dollar / Mexican peso)




                                                                             3
Currency Crosses                                                               TRADING CURRENCY PAIRS
                                                                               Investors, just like you, make money every day by trading currency
Currency crosses, or the crosses, are the currency pairs that are              pairs. By determining what is going to happen to a currency pair in the
comprised of any two currencies—so long as neither of them is not the          future, investors can act today to take advantage of coming price
U.S. dollar (USD). The euro (EUR) paired with the British pound (GBP) or       movements.
the Australian dollar (AUD) paired with the Japanese yen (JPY) would
                                                                               Currency pairs can do one of the following three things:
be considered currency crosses.

                                                                                                      They can go up
                                                                                                      They can go down
The following is a list of some of the more popular currency crosses:                                 They can go sideways


    GBP/JPY              (British pound / Japanese yen)
                                                                               Before you can determine if a currency pair is going to be going up,
    EUR/GBP              (Euro / British pound)                                down or sideways, however, you need to determine which currency in
                                                                               the pair is getting stronger and which currency is getting weaker,
    AUD/JPY              (Australian dollar / Japanese yen)                    compared to the other currency. For instance, if you are looking at the
                                                                               EUR/USD (euro / U.S. dollar) pair, you have to decide if the euro is
    EUR/CAD              (Euro / Canadian dollar)                              getting stronger than the U.S. dollar or if the U.S. dollar is getting
                                                                               stronger than the euro.
    CAD/JPY              (Canadian dollar / Japanese yen)
                                                                               Note: The first currency listed in the currency pair is called the base
                                                                               currency and the second currency listed in the currency pair is called the




                                                                           4
quote currency. When you look at the price of a currency pair, it tells
you how many of the quote currency it would take to buy one unit of
the base currency.                                                                You can buy the currency pair
                                                                                  You can sell the currency pair
If the base currency is strengthening against the quote currency, the             You can do nothing
currency pair will be moving up. If the quote currency is strengthening
against the base currency, the currency pair will be moving down. If the
base currency and the quote currency are equally strong, the currency
                                                                               Buying a Currency Pair
                                                                               You can make money trading the forex if you buy a currency pair when
pair will be moving sideways.
                                                                               the first currency in the currency pair (the base currency) is
The following is a quick reference to help you remember which way a            strengthening compared to the second currency in the currency pair
currency pair will be moving:                                                  (the quote currency).

                                                                               Entering the trade—Buying a currency pair is as simple as clicking the
                                                                               “Buy” button in your trading station.
                        Base > Quote = Up
                        Base < Quote = Down
                        Base = Quote = Sideways



Once you have decided which way the currency pair is going to move,
you can place your trade. When trading forex, you can do one of the
following three things:




                                                                           5
For example, if you buy the EUR/USD to enter the trade, you must sell
                                                                                the EUR/USD to exit that trade.




                                                                                Selling a Currency Pair
                                                                                You can make money trading the forex if you sell a currency pair when
                                                                                the second currency in the currency pair (the quote currency) is
                                                                                strengthening compared to the first currency in the currency pair (the
                                                                                base currency).

                                                                                Entering the trade—Selling a currency pair is as simple as clicking the
While all you have to do is click a button, knowing what happens when
                                                                                “Sell” button in your trading station.
you click that button is extremely important. However, you don’t have
to worry about the technicalities right now. You will learn what
happens behind the scenes shortly when you learn about trading on
margin.

Exiting the trade—Buying a currency pair is only the first step in the
trading process. To complete your trade and take your profits, or losses,
you have to exit your trade. To exit a trade, you simply have to do the
opposite of whatever you did to enter the trade. If you bought a
currency pair to enter the trade, you must sell that same currency pair
to exit the trade.




                                                                            6
While all you have to do is click a button, knowing what happens when           pair moves sideways, it is extremely difficult to make money by trying
you click that button is extremely important. However, you don’t have           to buy or sell the currency pair.
to worry about the technicalities right now. You will learn what
happens behind the scenes shortly when you learn about trading on               To make money when a currency pair is moving sideways, you need to
margin.                                                                         use forex options. You’ll learn more about forex options—what they
                                                                                are and how you can put them to work in your account—later on in
Exiting the trade—Selling a currency pair is only the first step in the         your forex education. For now, focus on learning how to identify when
trading process. To complete your trade and take your profits, or losses,       a currency pair is going up or down and how you can take advantage
you have to exit your trade. To exit a trade, you simply have to do the         of those movements.
opposite of whatever you did to enter the trade. If you sold a currency
pair to enter the trade, you must buy back that same currency pair to
exit the trade.                                                                 THE MECHANICS OF TRADING
For example, if you sell the EUR/USD to enter the trade, you must buy
the EUR/USD back to exit that trade.
                                                                                CURRENCY PAIRS
                                                                                The forex market shares many similarities with other markets you are
                                                                                acquainted with in your life—like the super market or a car market—
                                                                                where you can buy and sell items for a set value. However, you also
Doing Nothing with a Currency Pair                                              enjoy a few unique benefits when you invest in the forex market. For
                                                                                instance, when you trade in the forex market with Saxo Bank, you are
You cannot make money trading the forex by buying or selling a
                                                                                able to control and profit from significant quantities of currency
currency pair when the first currency in the currency pair (the base
                                                                                without having to pay for it all up front yourself.
currency) is not strengthening or weakening compared to the second
currency in the currency pair (the quote currency). When a currency




                                                                            7
To fully utilize and appreciate the unique benefits you can enjoy by              You can lever, or increase the investing power of, your forex accounts
investing in the forex market, you need to understand how each trade              by using some of your own money to enter a trade and then borrowing
you enter works. In particular, you need to understand what each of               the rest from your dealer. For example, the forex market allows you to
the following three concepts means:                                               control $100,000 with as little as $1,000 of your own money. That
                                                                                  means you only have to pay for 1 percent of the position with your
   Leverage                                                                      own money. You can borrow the remaining 99 percent of the purchase
   Margin
                                                                                  price from your dealer.
   Spread
                                                                                  The leverage you enjoy in the forex market is determined by the margin
                                                                                  you are required to post for each trade.
Leverage
Leverage is probably the one characteristic of the forex market that
intrigues individual investors the most. Leverage is the ability to convert
a small amount of power into a larger amount through the use of a                 Margin
tool. Imagine you are asked to move a large boulder from the spot                 The forex market is an exciting market because your dealer is willing to
where it is currently resting. You could certainly try to push and move           lend you money so you increase your profit-generating potential in all
the boulder with your bare hands, but your job will be much easier if             of your trades. Before your dealer lets you borrow money, however,
you can use a tool—like a large pole—that you can place under the                 you have to show that you have some money to cover any losses you
boulder that will give you some leverage.                                         may incur. Margin is the money you set aside with your dealer for safe
                                                                                  keeping to prove that you are able to cover your losses.
The same principle holds true when you are investing in the forex
market. You can make money by investing just your own money, but                  For example, if you buy the EUR/USD, you will be required to set aside
you can make much more money if you can use the tool of financial                 1 percent of the position size as margin. That means if the position size
leverage by borrowing money from your dealer.                                     is 100,000 euros, you will be required to set aside the equivalent of




                                                                              8
1,000 euros to prove to your dealer that you can cover losses of at least       The Spread
1,000 euros should your trade move against you.                                 The spread is the distance between the price at which you can buy a
                                                                                currency pair and the price at which you can sell a currency pair at any
Different currency pairs have different margin requirements. Major
                                                                                given moment.
currency pairs have lower margin requirements because their high
levels of liquidity make it easier to enter and exit your trades quickly—       You cannot buy a currency pair and immediately turn around and sell it
which gives your dealer added confidence it will be able to close out           at a lower price. The price at which you can buy a currency pair (the
your positions without incurring unexpected losses. Exotic currency             “Ask” price), is always higher than the price at which you can sell a
pairs have higher margin requirements because their low levels of               currency pair (the “Bid” price).
liquidity make it harder to enter and exit your trades quickly.
                                                                                Whenever you enter a trade, you start out with a small loss because of
Many beginning forex traders get confused by thinking that the money            the spread. You must overcome the spread—hold onto the trade long
they set aside as margin actually goes toward purchasing currencies. It         enough for it to move through the spread—before you will be
does not. You borrow 100 percent of the purchase price from your                profitable on your trade. It is a small hurdle to clear and a small price to
dealer. Your margin only shows your dealer you have money to cover              pay for the leverage and liquidity Saxo Bank provides in the forex
any losses that you may incur.                                                  market.

When you buy a currency pair, you do not have to come up with the
cash on your own. Your broker loans you enough of one currency to
buy enough of the other currency in the pair. For example, if you click
on the “Buy” button to buy the EUR/USD pair at 100,000 units, your
dealer will loan you enough U.S. dollars (USD) to buy 100,000 euros
(EUR). If the EUR/USD exchange rate is 1.4000 at the time, your dealer
will loan you 140,000 U.S. dollars to buy 100,000 euros.




                                                                            9
10
Disclaimer
None of the information contained herein constitutes an offer to purchase or sell a financial instrument or to make any investments.
Saxo Bank A/S and/or its affiliates and subsidiaries (hereinafter referred to as the “Saxo Bank Group”) do not take into account your
personal investment objectives or financial situation and make no representation, and assume no liability to the accuracy or
completeness of the information provided, nor for any loss arising from any investment based on a recommendation, forecast or other
information supplied from any employee of Saxo Bank, third party, or otherwise. Trades in accordance with the recommendations in an
analysis, especially, but not limited to, leveraged investments such as foreign exchange trading and investment in derivatives, can be
very speculative and may result in losses as well as profits. You should carefully consider your financial situation and consult your
financial advisor(s) in order to understand the risks involved and ensure the suitability of your situation prior to making any investment
or entering into any transactions. All expressions of opinion are subject to change without notice. Any opinions made may be personal
to the author and may not reflect the opinions of Saxo Bank.

Please furthermore refer to Saxo Bank's full General Disclaimer: http://www.saxobank.com/?id=193




                                                                   11

Contenu connexe

Tendances

How is the_japanese_yen1
How is the_japanese_yen1How is the_japanese_yen1
How is the_japanese_yen1s1150027
 
Why is the japanese yen so strong
Why is the japanese yen so strongWhy is the japanese yen so strong
Why is the japanese yen so strongYanai Junnosuke
 
Exchange mechanism
Exchange mechanismExchange mechanism
Exchange mechanismNeeraj Rana
 
Strong_Yen
Strong_YenStrong_Yen
Strong_Yens1170178
 
Olivier Desbarres: FX Reserves - All Things Considered Equal
Olivier Desbarres: FX Reserves - All Things Considered EqualOlivier Desbarres: FX Reserves - All Things Considered Equal
Olivier Desbarres: FX Reserves - All Things Considered EqualOlivier Desbarres
 
Lecture 2 4
Lecture 2   4Lecture 2   4
Lecture 2 4Meena Mk
 
Weekly Review June 1 09
Weekly Review June 1 09Weekly Review June 1 09
Weekly Review June 1 09saltwalter1
 
Daily i-forex-report-1 by epic research 31 may 2013
Daily i-forex-report-1 by epic research 31 may 2013Daily i-forex-report-1 by epic research 31 may 2013
Daily i-forex-report-1 by epic research 31 may 2013Epic Daily Report
 
Daily i-forex-report-19-aug-2013
Daily i-forex-report-19-aug-2013Daily i-forex-report-19-aug-2013
Daily i-forex-report-19-aug-2013Epic Daily Report
 
Why is the Japanese Yen so Strong
Why is the Japanese Yen so StrongWhy is the Japanese Yen so Strong
Why is the Japanese Yen so Strongs1180091
 
Exchange rate final
Exchange rate finalExchange rate final
Exchange rate finalMohamed Awad
 
devaluation of Japaneses currency
devaluation of Japaneses currency devaluation of Japaneses currency
devaluation of Japaneses currency nishant bhatia
 
Foreign exchange management
Foreign exchange managementForeign exchange management
Foreign exchange managementChandini Ammu
 

Tendances (20)

How is the_japanese_yen1
How is the_japanese_yen1How is the_japanese_yen1
How is the_japanese_yen1
 
Why is the japanese yen so strong
Why is the japanese yen so strongWhy is the japanese yen so strong
Why is the japanese yen so strong
 
Exchange mechanism
Exchange mechanismExchange mechanism
Exchange mechanism
 
Strong_Yen
Strong_YenStrong_Yen
Strong_Yen
 
Olivier Desbarres: FX Reserves - All Things Considered Equal
Olivier Desbarres: FX Reserves - All Things Considered EqualOlivier Desbarres: FX Reserves - All Things Considered Equal
Olivier Desbarres: FX Reserves - All Things Considered Equal
 
BETA 2 BROCHURE
BETA 2 BROCHUREBETA 2 BROCHURE
BETA 2 BROCHURE
 
Ap Macro Forex
Ap Macro ForexAp Macro Forex
Ap Macro Forex
 
English
EnglishEnglish
English
 
Parts of the newspaper
Parts of the newspaper Parts of the newspaper
Parts of the newspaper
 
Lecture 2 4
Lecture 2   4Lecture 2   4
Lecture 2 4
 
Weekly Review June 1 09
Weekly Review June 1 09Weekly Review June 1 09
Weekly Review June 1 09
 
Daily i-forex-report-1 by epic research 31 may 2013
Daily i-forex-report-1 by epic research 31 may 2013Daily i-forex-report-1 by epic research 31 may 2013
Daily i-forex-report-1 by epic research 31 may 2013
 
Daily i-forex-report-19-aug-2013
Daily i-forex-report-19-aug-2013Daily i-forex-report-19-aug-2013
Daily i-forex-report-19-aug-2013
 
Why is the Japanese Yen so Strong
Why is the Japanese Yen so StrongWhy is the Japanese Yen so Strong
Why is the Japanese Yen so Strong
 
The World of Sony
The World of SonyThe World of Sony
The World of Sony
 
Exchange rate final
Exchange rate finalExchange rate final
Exchange rate final
 
financial markets
financial marketsfinancial markets
financial markets
 
devaluation of Japaneses currency
devaluation of Japaneses currency devaluation of Japaneses currency
devaluation of Japaneses currency
 
20101222
2010122220101222
20101222
 
Foreign exchange management
Foreign exchange managementForeign exchange management
Foreign exchange management
 

En vedette

Pcf week 18 risk management forex 2
Pcf week 18 risk management forex 2Pcf week 18 risk management forex 2
Pcf week 18 risk management forex 2FCGNUK
 
Risk Management in FOREX in banks
Risk Management in FOREX in banksRisk Management in FOREX in banks
Risk Management in FOREX in bankskarthiga3
 
Forex risk management techniques
Forex risk management techniquesForex risk management techniques
Forex risk management techniquesAathira U
 
Share Market
Share MarketShare Market
Share Marketashtle
 
Foreign exchange management
Foreign exchange managementForeign exchange management
Foreign exchange managementkarishma
 
Forex Management ppt
Forex Management pptForex Management ppt
Forex Management pptjiwant
 
Risk Management & Forex Derivatives
Risk Management & Forex DerivativesRisk Management & Forex Derivatives
Risk Management & Forex DerivativesDeepak Verma
 
Foreign exchange exposure
Foreign exchange exposureForeign exchange exposure
Foreign exchange exposureTaher Ahmed
 
management of foreign exchange and risk management
management of foreign exchange and risk managementmanagement of foreign exchange and risk management
management of foreign exchange and risk managementAjilal
 
Unit 5 Forex Risk Management
Unit 5 Forex Risk ManagementUnit 5 Forex Risk Management
Unit 5 Forex Risk ManagementCharu Rastogi
 
Foreign exchange market and it's structure in india
Foreign exchange market and it's structure in indiaForeign exchange market and it's structure in india
Foreign exchange market and it's structure in indiaStudsPlanet.com
 
Foreign Exchange Risk Management (Currency Risk Management)
Foreign Exchange Risk Management (Currency Risk Management)Foreign Exchange Risk Management (Currency Risk Management)
Foreign Exchange Risk Management (Currency Risk Management)Hisham Rizvi
 

En vedette (20)

Risk in forex trading
Risk in forex tradingRisk in forex trading
Risk in forex trading
 
Pcf week 18 risk management forex 2
Pcf week 18 risk management forex 2Pcf week 18 risk management forex 2
Pcf week 18 risk management forex 2
 
Rates of exchange
Rates of exchangeRates of exchange
Rates of exchange
 
Forex Fund Management
Forex Fund ManagementForex Fund Management
Forex Fund Management
 
Forex Market - Risk Exposure
Forex Market - Risk ExposureForex Market - Risk Exposure
Forex Market - Risk Exposure
 
Risk Management in FOREX in banks
Risk Management in FOREX in banksRisk Management in FOREX in banks
Risk Management in FOREX in banks
 
Forex markets
Forex marketsForex markets
Forex markets
 
Forex risk management techniques
Forex risk management techniquesForex risk management techniques
Forex risk management techniques
 
Forex
ForexForex
Forex
 
Share Market
Share MarketShare Market
Share Market
 
Foreign exchange management
Foreign exchange managementForeign exchange management
Foreign exchange management
 
Forex Management ppt
Forex Management pptForex Management ppt
Forex Management ppt
 
Risk Management & Forex Derivatives
Risk Management & Forex DerivativesRisk Management & Forex Derivatives
Risk Management & Forex Derivatives
 
FDI & FII in India
FDI & FII in IndiaFDI & FII in India
FDI & FII in India
 
Foreign exchange exposure
Foreign exchange exposureForeign exchange exposure
Foreign exchange exposure
 
What is forex ?
What is forex ?What is forex ?
What is forex ?
 
management of foreign exchange and risk management
management of foreign exchange and risk managementmanagement of foreign exchange and risk management
management of foreign exchange and risk management
 
Unit 5 Forex Risk Management
Unit 5 Forex Risk ManagementUnit 5 Forex Risk Management
Unit 5 Forex Risk Management
 
Foreign exchange market and it's structure in india
Foreign exchange market and it's structure in indiaForeign exchange market and it's structure in india
Foreign exchange market and it's structure in india
 
Foreign Exchange Risk Management (Currency Risk Management)
Foreign Exchange Risk Management (Currency Risk Management)Foreign Exchange Risk Management (Currency Risk Management)
Foreign Exchange Risk Management (Currency Risk Management)
 

Similaire à FOREX - CURRENCIES COME IN PAIRS (1.2)

Major, Minor and Exotic Forex Trading Currency Pairs
Major, Minor and Exotic Forex Trading Currency PairsMajor, Minor and Exotic Forex Trading Currency Pairs
Major, Minor and Exotic Forex Trading Currency PairsViet Son
 
Teleseminar secrets preview 2008 09 -- mindmap
Teleseminar secrets preview 2008 09 -- mindmapTeleseminar secrets preview 2008 09 -- mindmap
Teleseminar secrets preview 2008 09 -- mindmapJames Nance
 
foriegn exchange, exchange rate quotation
foriegn exchange, exchange rate quotationforiegn exchange, exchange rate quotation
foriegn exchange, exchange rate quotationaseel m
 
24th jan 2011 saxo bank soho presentation
24th jan 2011 saxo bank soho presentation24th jan 2011 saxo bank soho presentation
24th jan 2011 saxo bank soho presentationSaxoBankLondon
 
HOW TO BECOME A FOREX EXPERT IN 4 WEEKS
HOW TO BECOME A FOREX EXPERT IN 4 WEEKSHOW TO BECOME A FOREX EXPERT IN 4 WEEKS
HOW TO BECOME A FOREX EXPERT IN 4 WEEKScharles osigwe
 
Let's Get to Know Forex - An Introduction to Trading Currencies
Let's Get to Know Forex - An Introduction to Trading CurrenciesLet's Get to Know Forex - An Introduction to Trading Currencies
Let's Get to Know Forex - An Introduction to Trading CurrenciesLearn FX Trade
 
Introduction to forex
Introduction to forexIntroduction to forex
Introduction to forexRobert R
 
Learn Easy Forex
Learn Easy ForexLearn Easy Forex
Learn Easy ForexSlider2822
 
What is foreign exchange lesson 3
What is foreign exchange lesson 3What is foreign exchange lesson 3
What is foreign exchange lesson 3ShahidMehmood165
 
Chapter 18 International Finance
Chapter 18 International FinanceChapter 18 International Finance
Chapter 18 International FinanceAlamgir Alwani
 
What is forex market
What is forex marketWhat is forex market
What is forex marketFormaxMarket
 
What is Forex Market?
What is Forex Market?What is Forex Market?
What is Forex Market?FormaxMarket1
 
Foreign exchange
Foreign exchangeForeign exchange
Foreign exchangePreethamm13
 

Similaire à FOREX - CURRENCIES COME IN PAIRS (1.2) (20)

Currency pairs
Currency pairsCurrency pairs
Currency pairs
 
English Version Forex Intro Seminar
English Version Forex Intro SeminarEnglish Version Forex Intro Seminar
English Version Forex Intro Seminar
 
Major, Minor and Exotic Forex Trading Currency Pairs
Major, Minor and Exotic Forex Trading Currency PairsMajor, Minor and Exotic Forex Trading Currency Pairs
Major, Minor and Exotic Forex Trading Currency Pairs
 
Teleseminar secrets preview 2008 09 -- mindmap
Teleseminar secrets preview 2008 09 -- mindmapTeleseminar secrets preview 2008 09 -- mindmap
Teleseminar secrets preview 2008 09 -- mindmap
 
foriegn exchange, exchange rate quotation
foriegn exchange, exchange rate quotationforiegn exchange, exchange rate quotation
foriegn exchange, exchange rate quotation
 
24th jan 2011 saxo bank soho presentation
24th jan 2011 saxo bank soho presentation24th jan 2011 saxo bank soho presentation
24th jan 2011 saxo bank soho presentation
 
HOW TO BECOME A FOREX EXPERT IN 4 WEEKS
HOW TO BECOME A FOREX EXPERT IN 4 WEEKSHOW TO BECOME A FOREX EXPERT IN 4 WEEKS
HOW TO BECOME A FOREX EXPERT IN 4 WEEKS
 
Let's Get to Know Forex - An Introduction to Trading Currencies
Let's Get to Know Forex - An Introduction to Trading CurrenciesLet's Get to Know Forex - An Introduction to Trading Currencies
Let's Get to Know Forex - An Introduction to Trading Currencies
 
Introduction to forex
Introduction to forexIntroduction to forex
Introduction to forex
 
Learn Easy Forex
Learn Easy ForexLearn Easy Forex
Learn Easy Forex
 
Forex tips
Forex tipsForex tips
Forex tips
 
What is foreign exchange lesson 3
What is foreign exchange lesson 3What is foreign exchange lesson 3
What is foreign exchange lesson 3
 
csi.ppt
csi.pptcsi.ppt
csi.ppt
 
Hisplus Forex
Hisplus ForexHisplus Forex
Hisplus Forex
 
Chapter 18 International Finance
Chapter 18 International FinanceChapter 18 International Finance
Chapter 18 International Finance
 
What is forex market
What is forex marketWhat is forex market
What is forex market
 
What is Forex Market?
What is Forex Market?What is Forex Market?
What is Forex Market?
 
Foreign exchange
Foreign exchangeForeign exchange
Foreign exchange
 
Bullscapital markets fx e-book
Bullscapital markets fx e-bookBullscapital markets fx e-book
Bullscapital markets fx e-book
 
WHAT IS FOREX TRADING?
WHAT IS FOREX TRADING?WHAT IS FOREX TRADING?
WHAT IS FOREX TRADING?
 

Plus de Trading Floor

Saxo Bank Corporate Bonds
Saxo Bank Corporate BondsSaxo Bank Corporate Bonds
Saxo Bank Corporate BondsTrading Floor
 
Saxo Bank Government Bonds
Saxo Bank Government BondsSaxo Bank Government Bonds
Saxo Bank Government BondsTrading Floor
 
Saxo Bank Emerging Markets Bonds
Saxo Bank Emerging Markets BondsSaxo Bank Emerging Markets Bonds
Saxo Bank Emerging Markets BondsTrading Floor
 
Saxo Fundamental FX Portfolio for March 2011
Saxo Fundamental FX Portfolio for March 2011Saxo Fundamental FX Portfolio for March 2011
Saxo Fundamental FX Portfolio for March 2011Trading Floor
 
Earnings Releases 7.March - 13.March 2011
Earnings Releases 7.March - 13.March 2011 Earnings Releases 7.March - 13.March 2011
Earnings Releases 7.March - 13.March 2011 Trading Floor
 
Global Value Equity Portfolio (March 2011)
Global Value Equity Portfolio (March 2011)Global Value Equity Portfolio (March 2011)
Global Value Equity Portfolio (March 2011)Trading Floor
 
FOREX - TECHNICAL ANALYSIS: FIBONACCI (4.2)
FOREX - TECHNICAL ANALYSIS: FIBONACCI (4.2)FOREX - TECHNICAL ANALYSIS: FIBONACCI (4.2)
FOREX - TECHNICAL ANALYSIS: FIBONACCI (4.2)Trading Floor
 
FOREX - TRADING PSYCHOLOGY (3.3)
FOREX - TRADING PSYCHOLOGY (3.3)FOREX - TRADING PSYCHOLOGY (3.3)
FOREX - TRADING PSYCHOLOGY (3.3)Trading Floor
 
FOREX - TECHNICAL ANALYSIS: PRICE PATTERNS (3.2)
FOREX - TECHNICAL ANALYSIS: PRICE PATTERNS (3.2)FOREX - TECHNICAL ANALYSIS: PRICE PATTERNS (3.2)
FOREX - TECHNICAL ANALYSIS: PRICE PATTERNS (3.2)Trading Floor
 
FOREX - TECHNICAL ANALYSIS: TRENDS, SUPPORT AND RESISTANCE (1.4)
FOREX - TECHNICAL ANALYSIS: TRENDS, SUPPORT AND RESISTANCE (1.4)FOREX - TECHNICAL ANALYSIS: TRENDS, SUPPORT AND RESISTANCE (1.4)
FOREX - TECHNICAL ANALYSIS: TRENDS, SUPPORT AND RESISTANCE (1.4)Trading Floor
 
Earnings Releases 21.February - 27. February 2011
Earnings Releases 21.February - 27. February 2011Earnings Releases 21.February - 27. February 2011
Earnings Releases 21.February - 27. February 2011Trading Floor
 
Commodities on the radar - Weekly Commodity Update 1.2.11
Commodities on the radar - Weekly Commodity Update 1.2.11Commodities on the radar - Weekly Commodity Update 1.2.11
Commodities on the radar - Weekly Commodity Update 1.2.11Trading Floor
 
Earnings releases 7. February - 11.February 2011
Earnings releases  7. February - 11.February 2011Earnings releases  7. February - 11.February 2011
Earnings releases 7. February - 11.February 2011Trading Floor
 
Earnings releases 2.February - 11.February 2011
Earnings releases 2.February - 11.February 2011Earnings releases 2.February - 11.February 2011
Earnings releases 2.February - 11.February 2011Trading Floor
 
Earnings releases 17. January - 23. January 2011
Earnings releases 17. January - 23. January 2011Earnings releases 17. January - 23. January 2011
Earnings releases 17. January - 23. January 2011Trading Floor
 
Forex Portfolio for February 2011
Forex Portfolio for February 2011Forex Portfolio for February 2011
Forex Portfolio for February 2011Trading Floor
 
Forex Portfolio for January 2011
Forex Portfolio for January 2011Forex Portfolio for January 2011
Forex Portfolio for January 2011Trading Floor
 
Saxo Asset Allocation for February 2011
Saxo Asset Allocation for February 2011Saxo Asset Allocation for February 2011
Saxo Asset Allocation for February 2011Trading Floor
 
Monthly Forex Update by Saxo Bank
Monthly Forex Update by Saxo BankMonthly Forex Update by Saxo Bank
Monthly Forex Update by Saxo BankTrading Floor
 

Plus de Trading Floor (20)

Saxo Bank Corporate Bonds
Saxo Bank Corporate BondsSaxo Bank Corporate Bonds
Saxo Bank Corporate Bonds
 
Saxo Bank Government Bonds
Saxo Bank Government BondsSaxo Bank Government Bonds
Saxo Bank Government Bonds
 
Saxo Bank Emerging Markets Bonds
Saxo Bank Emerging Markets BondsSaxo Bank Emerging Markets Bonds
Saxo Bank Emerging Markets Bonds
 
Saxo Fundamental FX Portfolio for March 2011
Saxo Fundamental FX Portfolio for March 2011Saxo Fundamental FX Portfolio for March 2011
Saxo Fundamental FX Portfolio for March 2011
 
Earnings Releases 7.March - 13.March 2011
Earnings Releases 7.March - 13.March 2011 Earnings Releases 7.March - 13.March 2011
Earnings Releases 7.March - 13.March 2011
 
Dynamic weights
Dynamic weightsDynamic weights
Dynamic weights
 
Global Value Equity Portfolio (March 2011)
Global Value Equity Portfolio (March 2011)Global Value Equity Portfolio (March 2011)
Global Value Equity Portfolio (March 2011)
 
FOREX - TECHNICAL ANALYSIS: FIBONACCI (4.2)
FOREX - TECHNICAL ANALYSIS: FIBONACCI (4.2)FOREX - TECHNICAL ANALYSIS: FIBONACCI (4.2)
FOREX - TECHNICAL ANALYSIS: FIBONACCI (4.2)
 
FOREX - TRADING PSYCHOLOGY (3.3)
FOREX - TRADING PSYCHOLOGY (3.3)FOREX - TRADING PSYCHOLOGY (3.3)
FOREX - TRADING PSYCHOLOGY (3.3)
 
FOREX - TECHNICAL ANALYSIS: PRICE PATTERNS (3.2)
FOREX - TECHNICAL ANALYSIS: PRICE PATTERNS (3.2)FOREX - TECHNICAL ANALYSIS: PRICE PATTERNS (3.2)
FOREX - TECHNICAL ANALYSIS: PRICE PATTERNS (3.2)
 
FOREX - TECHNICAL ANALYSIS: TRENDS, SUPPORT AND RESISTANCE (1.4)
FOREX - TECHNICAL ANALYSIS: TRENDS, SUPPORT AND RESISTANCE (1.4)FOREX - TECHNICAL ANALYSIS: TRENDS, SUPPORT AND RESISTANCE (1.4)
FOREX - TECHNICAL ANALYSIS: TRENDS, SUPPORT AND RESISTANCE (1.4)
 
Earnings Releases 21.February - 27. February 2011
Earnings Releases 21.February - 27. February 2011Earnings Releases 21.February - 27. February 2011
Earnings Releases 21.February - 27. February 2011
 
Commodities on the radar - Weekly Commodity Update 1.2.11
Commodities on the radar - Weekly Commodity Update 1.2.11Commodities on the radar - Weekly Commodity Update 1.2.11
Commodities on the radar - Weekly Commodity Update 1.2.11
 
Earnings releases 7. February - 11.February 2011
Earnings releases  7. February - 11.February 2011Earnings releases  7. February - 11.February 2011
Earnings releases 7. February - 11.February 2011
 
Earnings releases 2.February - 11.February 2011
Earnings releases 2.February - 11.February 2011Earnings releases 2.February - 11.February 2011
Earnings releases 2.February - 11.February 2011
 
Earnings releases 17. January - 23. January 2011
Earnings releases 17. January - 23. January 2011Earnings releases 17. January - 23. January 2011
Earnings releases 17. January - 23. January 2011
 
Forex Portfolio for February 2011
Forex Portfolio for February 2011Forex Portfolio for February 2011
Forex Portfolio for February 2011
 
Forex Portfolio for January 2011
Forex Portfolio for January 2011Forex Portfolio for January 2011
Forex Portfolio for January 2011
 
Saxo Asset Allocation for February 2011
Saxo Asset Allocation for February 2011Saxo Asset Allocation for February 2011
Saxo Asset Allocation for February 2011
 
Monthly Forex Update by Saxo Bank
Monthly Forex Update by Saxo BankMonthly Forex Update by Saxo Bank
Monthly Forex Update by Saxo Bank
 

FOREX - CURRENCIES COME IN PAIRS (1.2)

  • 2. GETTING STARTED CURRENCIES COME IN PAIRS You know the advantages of trading forex, and you are excited to start Everything is relative in the forex market. The euro, by itself, is neither trading. Now you need to learn what this market is all about. How does strong nor weak. The same holds true for the U.S. dollar. By itself, it is it work? What makes currency pairs move up and down? Most neither strong nor weak. Only when you compare two currencies importantly, how can you make money trading forex? together can you determine how strong or weak each currency is in relation to the other currency. Every successful forex investor begins with a solid foundation of knowledge upon which to build. Let’s start with currency pairs—the For example, the euro could be getting stronger compared to the U.S. building blocks of the forex market—and how you will be using them dollar. However, the euro could also be getting weaker compared to in your trading. the British pound at the same time. In this first section, we will explain the following to get you ready to Currencies always trade in pairs. You never simply buy the euro or sell place your first trade: the U.S. dollar. You trade them as a pair. If you believe the euro is gaining strength compared to the U.S. dollar, you buy euros and sell What a currency pair is U.S. dollars at the same time. If you believe the U.S. dollar is gaining strength compared to the euro, you buy U.S. dollars and sell euros at How you can trade a currency pair the same time. You always buy the stronger currency and sell the What happens when you trade a currency pair weaker currency. Currency pairs are typically divided into the following three major groups: 1
  • 3. Major currency pairs Exotic currency pairs EUR/USD (Euro / U.S. dollar) Currency crosses GBP/USD (British pound / U.S. dollar) USD/CHF (U.S. dollar / Swiss franc) Major Currency Pairs USD/JPY (U.S. dollar / Japanese yen) Most forex investors begin by investing in the major currency pairs, or the majors. The majors are those currency pairs that are comprised of USD/CAD (U.S. dollar / Canadian dollar) the most important currency in the global markets—the U.S. dollar AUD/USD (Australian dollar / U.S. dollar) (USD)—crossed with one of seven other globally significant currencies—the euro (EUR), the Great British pound (GBP), the Swiss NZD/USD (New Zealand dollar / U.S. dollar) franc (CHF), the Japanese yen (JPY), the Canadian dollar (CAD), the Australian dollar (AUD) and the New Zealand dollar (NZD). Take some time to learn the following major currency pairs because you will most likely be using them extensively: 2
  • 4. Exotic Currency Pairs The exotic currency pairs, or the exotics, are the currency pairs that are comprised of the most important currency in the global markets—the USD/SEK (U.S. dollar / Swedish krone) U.S. dollar (USD)—crossed with any currency that is not considered a major currency. Exotic currencies—like the Swedish krone (SEK), the USD/NOK (U.S. dollar / Norwegian krone) South African rand (ZAR), or the Mexican peso (MXN)—are called exotic because they are associated with illiquid currencies that might USD/DKK (U.S. dollar / Danish krone) not be available in a standard trading account. USD/HKD (U.S. dollar / Hong Kong dollar) Exotic currencies are usually lightly traded and have large bid/ask spreads. However, many so-called “exotic” currencies are becoming USD/ZAR (U.S. dollar / South African rand) more popular and more and more investors are trading them. USD/THB (U.S. dollar / Thai baht) Take a look at the following list of exotic currency pairs because you USD/SGD (U.S. dollar / Singapore dollar) may be interested in diversifying your forex portfolio with a few uncorrelated currency pairs: USD/MXN (U.S. dollar / Mexican peso) 3
  • 5. Currency Crosses TRADING CURRENCY PAIRS Investors, just like you, make money every day by trading currency Currency crosses, or the crosses, are the currency pairs that are pairs. By determining what is going to happen to a currency pair in the comprised of any two currencies—so long as neither of them is not the future, investors can act today to take advantage of coming price U.S. dollar (USD). The euro (EUR) paired with the British pound (GBP) or movements. the Australian dollar (AUD) paired with the Japanese yen (JPY) would Currency pairs can do one of the following three things: be considered currency crosses. They can go up They can go down The following is a list of some of the more popular currency crosses: They can go sideways GBP/JPY (British pound / Japanese yen) Before you can determine if a currency pair is going to be going up, EUR/GBP (Euro / British pound) down or sideways, however, you need to determine which currency in the pair is getting stronger and which currency is getting weaker, AUD/JPY (Australian dollar / Japanese yen) compared to the other currency. For instance, if you are looking at the EUR/USD (euro / U.S. dollar) pair, you have to decide if the euro is EUR/CAD (Euro / Canadian dollar) getting stronger than the U.S. dollar or if the U.S. dollar is getting stronger than the euro. CAD/JPY (Canadian dollar / Japanese yen) Note: The first currency listed in the currency pair is called the base currency and the second currency listed in the currency pair is called the 4
  • 6. quote currency. When you look at the price of a currency pair, it tells you how many of the quote currency it would take to buy one unit of the base currency.  You can buy the currency pair  You can sell the currency pair If the base currency is strengthening against the quote currency, the  You can do nothing currency pair will be moving up. If the quote currency is strengthening against the base currency, the currency pair will be moving down. If the base currency and the quote currency are equally strong, the currency Buying a Currency Pair You can make money trading the forex if you buy a currency pair when pair will be moving sideways. the first currency in the currency pair (the base currency) is The following is a quick reference to help you remember which way a strengthening compared to the second currency in the currency pair currency pair will be moving: (the quote currency). Entering the trade—Buying a currency pair is as simple as clicking the “Buy” button in your trading station. Base > Quote = Up Base < Quote = Down Base = Quote = Sideways Once you have decided which way the currency pair is going to move, you can place your trade. When trading forex, you can do one of the following three things: 5
  • 7. For example, if you buy the EUR/USD to enter the trade, you must sell the EUR/USD to exit that trade. Selling a Currency Pair You can make money trading the forex if you sell a currency pair when the second currency in the currency pair (the quote currency) is strengthening compared to the first currency in the currency pair (the base currency). Entering the trade—Selling a currency pair is as simple as clicking the While all you have to do is click a button, knowing what happens when “Sell” button in your trading station. you click that button is extremely important. However, you don’t have to worry about the technicalities right now. You will learn what happens behind the scenes shortly when you learn about trading on margin. Exiting the trade—Buying a currency pair is only the first step in the trading process. To complete your trade and take your profits, or losses, you have to exit your trade. To exit a trade, you simply have to do the opposite of whatever you did to enter the trade. If you bought a currency pair to enter the trade, you must sell that same currency pair to exit the trade. 6
  • 8. While all you have to do is click a button, knowing what happens when pair moves sideways, it is extremely difficult to make money by trying you click that button is extremely important. However, you don’t have to buy or sell the currency pair. to worry about the technicalities right now. You will learn what happens behind the scenes shortly when you learn about trading on To make money when a currency pair is moving sideways, you need to margin. use forex options. You’ll learn more about forex options—what they are and how you can put them to work in your account—later on in Exiting the trade—Selling a currency pair is only the first step in the your forex education. For now, focus on learning how to identify when trading process. To complete your trade and take your profits, or losses, a currency pair is going up or down and how you can take advantage you have to exit your trade. To exit a trade, you simply have to do the of those movements. opposite of whatever you did to enter the trade. If you sold a currency pair to enter the trade, you must buy back that same currency pair to exit the trade. THE MECHANICS OF TRADING For example, if you sell the EUR/USD to enter the trade, you must buy the EUR/USD back to exit that trade. CURRENCY PAIRS The forex market shares many similarities with other markets you are acquainted with in your life—like the super market or a car market— where you can buy and sell items for a set value. However, you also Doing Nothing with a Currency Pair enjoy a few unique benefits when you invest in the forex market. For instance, when you trade in the forex market with Saxo Bank, you are You cannot make money trading the forex by buying or selling a able to control and profit from significant quantities of currency currency pair when the first currency in the currency pair (the base without having to pay for it all up front yourself. currency) is not strengthening or weakening compared to the second currency in the currency pair (the quote currency). When a currency 7
  • 9. To fully utilize and appreciate the unique benefits you can enjoy by You can lever, or increase the investing power of, your forex accounts investing in the forex market, you need to understand how each trade by using some of your own money to enter a trade and then borrowing you enter works. In particular, you need to understand what each of the rest from your dealer. For example, the forex market allows you to the following three concepts means: control $100,000 with as little as $1,000 of your own money. That means you only have to pay for 1 percent of the position with your  Leverage own money. You can borrow the remaining 99 percent of the purchase  Margin price from your dealer.  Spread The leverage you enjoy in the forex market is determined by the margin you are required to post for each trade. Leverage Leverage is probably the one characteristic of the forex market that intrigues individual investors the most. Leverage is the ability to convert a small amount of power into a larger amount through the use of a Margin tool. Imagine you are asked to move a large boulder from the spot The forex market is an exciting market because your dealer is willing to where it is currently resting. You could certainly try to push and move lend you money so you increase your profit-generating potential in all the boulder with your bare hands, but your job will be much easier if of your trades. Before your dealer lets you borrow money, however, you can use a tool—like a large pole—that you can place under the you have to show that you have some money to cover any losses you boulder that will give you some leverage. may incur. Margin is the money you set aside with your dealer for safe keeping to prove that you are able to cover your losses. The same principle holds true when you are investing in the forex market. You can make money by investing just your own money, but For example, if you buy the EUR/USD, you will be required to set aside you can make much more money if you can use the tool of financial 1 percent of the position size as margin. That means if the position size leverage by borrowing money from your dealer. is 100,000 euros, you will be required to set aside the equivalent of 8
  • 10. 1,000 euros to prove to your dealer that you can cover losses of at least The Spread 1,000 euros should your trade move against you. The spread is the distance between the price at which you can buy a currency pair and the price at which you can sell a currency pair at any Different currency pairs have different margin requirements. Major given moment. currency pairs have lower margin requirements because their high levels of liquidity make it easier to enter and exit your trades quickly— You cannot buy a currency pair and immediately turn around and sell it which gives your dealer added confidence it will be able to close out at a lower price. The price at which you can buy a currency pair (the your positions without incurring unexpected losses. Exotic currency “Ask” price), is always higher than the price at which you can sell a pairs have higher margin requirements because their low levels of currency pair (the “Bid” price). liquidity make it harder to enter and exit your trades quickly. Whenever you enter a trade, you start out with a small loss because of Many beginning forex traders get confused by thinking that the money the spread. You must overcome the spread—hold onto the trade long they set aside as margin actually goes toward purchasing currencies. It enough for it to move through the spread—before you will be does not. You borrow 100 percent of the purchase price from your profitable on your trade. It is a small hurdle to clear and a small price to dealer. Your margin only shows your dealer you have money to cover pay for the leverage and liquidity Saxo Bank provides in the forex any losses that you may incur. market. When you buy a currency pair, you do not have to come up with the cash on your own. Your broker loans you enough of one currency to buy enough of the other currency in the pair. For example, if you click on the “Buy” button to buy the EUR/USD pair at 100,000 units, your dealer will loan you enough U.S. dollars (USD) to buy 100,000 euros (EUR). If the EUR/USD exchange rate is 1.4000 at the time, your dealer will loan you 140,000 U.S. dollars to buy 100,000 euros. 9
  • 11. 10
  • 12. Disclaimer None of the information contained herein constitutes an offer to purchase or sell a financial instrument or to make any investments. Saxo Bank A/S and/or its affiliates and subsidiaries (hereinafter referred to as the “Saxo Bank Group”) do not take into account your personal investment objectives or financial situation and make no representation, and assume no liability to the accuracy or completeness of the information provided, nor for any loss arising from any investment based on a recommendation, forecast or other information supplied from any employee of Saxo Bank, third party, or otherwise. Trades in accordance with the recommendations in an analysis, especially, but not limited to, leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits. You should carefully consider your financial situation and consult your financial advisor(s) in order to understand the risks involved and ensure the suitability of your situation prior to making any investment or entering into any transactions. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and may not reflect the opinions of Saxo Bank. Please furthermore refer to Saxo Bank's full General Disclaimer: http://www.saxobank.com/?id=193 11