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What to know before you start Forex Trading 2

2011-08-19T08:58:00.000-07:00

ISO Codes
Currencies, as stocks, are not referred by their full name; they are standardized for easier
reference.The International Standardization Organization (ISO) developed what is called ISO
Codes for Currencies. The ISO currency codes are made of three letters:
• The first two letters represent the abbreviation of the country of each currency,
and, The last one represents the first letter of the country’s currency (dollar, franc,
etc.) Currencies can also be called by their nickname.

ISO Codes for the Major currencies traded in the Forex market are
* CHF - Swiss Franc, CH stands for Confederatio Helvetica, the Latin translation. This avoids choosing
* EUR - euro which is the currency of the European countries aside U.K
* USD - Dollar United States of America
* CAD- Canadian Dollar
*JPY - Japanese Yen
*AUD - Australian dollar
*GBP - Great Britain Pound
These are the seven major currencies that form all the transactions involved (volume) in the Forex market, 85% is produced by these seven majors. There are others currencies traded in the Forex market but as i earlier mentioned, these seven constitute 85% of the trades that are executed everyday.
Important to note is that these currencies can not be traded in isolation, therefore we should always remember that these currencies are paired together
It is easier to consider currency pairs as main instruments. For instance, you are expecting
the EUR to appreciate; you go long EUR (EUR/USD). What you are doing here
is buying the EUR and selling the USD. But it is not practical to view it that way. It is
easier to consider the EUR as the main instrument, so that you will only say “I am long
Euro”.
On the other side, if you are expecting the dollar to appreciate. You will go short EUR
(EUR/USD) here you are selling the EUR and buying the USD. You would say here, “I
am short EUR”.
Direct and Indirect Quotes
Every local currency can be quoted directly or indirectly against other currencies (most
of the time the US Dollar):
Direct quotation: Amount of local currency that is needed to buy one unit of the foreign
currency (most commonly the USD)
And, indirect Quotation: Amount of local currency that is to be received when one unit of the
foreign currency is sold.
Ok, now imagine your local currency is the EUR, in this case the quotation scheme
against the US Dollar would be: Direct Quotation: USD/EUR – How many Euros to get one US Dollar
And, Indirect Quotation: EUR/USD – How many US Dollars to get one Euro
For the sake of simplicity, sometimes the US Dollar is called the “Foreign Currency”, so
for the majors we have the following:
Direct Currencies
- USD/JPY
- USD/CAD
- USD/CHF

What to know Before you Start Forex

2011-08-19T08:13:00.000-07:00

What is The Forex Market?
The Forex market is an acronym of The Foreign Exchange Market also called The Currency
Market.
What is traded in the Forex Market?
Money, as simple as that!
Currencies are bought and sold freely. This is the simultaneous buying of one currency
and the selling of another.
For instance, you have some inside information that leads you to think that the Euro will
go up; you want to buy the Euro pair (or EUR/USD). When you buy the EUR/USD pair
you are actually buying the EUR and selling the US dollar. When you buy the EUR it is
also said that you are “long” the EUR. When you sell the EUR it is also said that you are
“short” the EUR.
More than 80% of the volume is generated by what we call the seven major currencies:
• The US dollar (USD)
• The Euro (EUR)
• The British Pound (GBP)
• The Swiss Franc (CHF)
• The Canadian dollar (CAD)
• The Australian dollar (AUD)
• The Japanese Yen (JPY)
When did it at all start?
You could not say it all started after a sole event. A series of events happened and in
the end it resulted in the Forex market, as we know it today.
It all started when the Bretton Woods agreement was finally abandoned around 1971.
In this agreement, participating countries had their currency pegged to either the gold or
the US dollar. By 1973 the most powerful countries around the globe introduced a free
exchange rate regime where they let their currencies fluctuate driven by the market or
more precisely by the forces of supply and demand. It was then when the Forex market
was available to speculate, hedge as well as other reasons.
It was not until 1997 when the Forex market became available to individual investors
and traders through online trading capabilities and leverage (margin trading), offering
traders around the world great opportunities to profit from the Forex market.
The Forex market is now the most liquid financial market of the world, with a generated
volume of nearly 2 trillion US dollars (source: BIS) on a daily basis (more than all other
US financial markets combined).
Where do all trades take place?
Unlike other financial markets, there is no physical location where all trades take place
in the Forex market. All transactions are conducted via telecommunications (phone, online
platforms, etc.) between banks, large institutions, investors, trader, etc. This is
called an Over the Counter market or OTC.
Teaser - How do you think the volume of all transactions is measured in the Forex market?
Let’s put the Stock market in perspective, all transactions in the NYSE (New York
Stock Exchange) are placed through the same NYSE, so they are able to measure how
many short and long positions are placed at any point in time. But since there are no
physical locations where all transactions are placed in the forex market, how is the volume
measured? Or is it even possible to measure the volume of all transactions in the
Forex Market?

Making Money on line the legitimate ways

2011-08-19T08:01:00.000-07:00

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Comments and Contributions are welcome on this blog

You are Welcome

2011-08-19T06:54:00.000-07:00

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