The Forex Market’s currencies
In the Forex market we trade the most famous good: money, or to put it in a more technical term, currencies.
Unlike the other markets, where the absolute values of singular assets, companies or index are shown, in the Forex market the representation of the currency value is made in a combined form. Here’s an example to clarify this concept:
In case of a company: Apple $ 600.00 (price that identifies the share’s value)
In the case of a commodity: Gold $ 1,662.15 per ounce (price that indicates the value of the commodity)
In the case of Index: Dow Jones 16,500 points (points that represent the value of the index)
In the currency market the values are always determined from a rapport between the value that a particular currency has in relation to another one. In Forex the value of a currency will never be expressed in absolute terms, but always in relation to another.
Currency pair: EUR/USD 1.3000
The value 1.3000 represents the value of the Euro currency against the Dollar currency. In the specific case we are saying that we need 1.3000 USD (one point three dollars) to have 1 Euro.
Base and Quote currencies
Let’s continue with the previous example: EUR / USD 1.3000.
If we say that we need $ 1.3000 for 1 euro, in reverse we can say that we need 0.7692 euro (1/1.3000 = 0.7692) for 1 usd. We are saying the same thing.
The numerator currency (left, Euro in our example) is defined as “base currency“, because its amount never varies in the ratio, and it always corresponds to a value of 1. The denominator (on the right, USD in our example) is called “quote currency”, and its amount varies with the exchange price.
A very important agreement states that the ratio between the currencies must be represented the same way all over the world, and for any intermediary. If we see EUR / USD (and we will always see EUR/USD, because this is the convention) we will never find the contrary USD/EUR.
The symbols of the major currencies
Here’s how to read the the currencies’ symbols:
USD: United States Dollar
JPY: Japan Yen
CHF: Swiss Franc (form the latin name “Confoederatio Helvetica”)
GBP: Great Britain pound
AUD: Australian Dollar
CAD: Canadian Dollar
Usually, the first two letters identifies the country, while the third corresponds to the first letter of the currency. An exception of course is EUR!
Opening hours of the Forex Market
Forex treats the currencies of all the markets around the world, and it’s very rare (except for worldwide holidays) that all the markets around the world are closed simultaneously. When a market is closed in one part of the world, another one is open in another part (for example, if the U.S. market is closed, the Japanese one is open).
For this reason, the Forex market is open 24 hours a day, 5 days a week, unlike other markets, again like the NYSE for example, that open in the morning and close in the afternoon (local time).
n the Forex market, trading of currencies usually begin at 22:00 GMT of Sunday, to end on Friday at 22:00 GMT.
Currency exchange in practice
The financial leverage
Types of traders
Buy long Sell short
Summary and Conclusions