Let's get into it! What do we trade?
There are several currency pairs that can be traded, but the majority of traders just stick with a group of about 8 to 10 pairs. That is more than enough choice.
First up, we have what they call the 'majors'. These are by far the most heavily traded currency pairs, and a lot of traders are just happy trading one or two of these. The majors include:
EUR/USD - This is the Euro dollar against the US dollar USD/ JPY - This is the Japanese yen against the US dollar GBP/USD - This is the Great Britain pound against the US dollar, and USD/CHF - This is the US dollar against the Swiss franc.
Notice how they are all against the US dollar, therefore when traders discuss these pairs, they simply just refer to them as the Euro, Yen, Pound (or Cable) and the Swissy.
Then we have what we call the '2nd tier pairs' and these include the following;
AUD/USD - This is the Australian dollar against the US Dollar USD/CAD - This is the US dollar against the Canadian dollar, and NZD/USD - This is the New Zealand dollar against the US dollar
Again, these pairs are all against the US dollar, so they are simply referred to as the Aussie, Loonie and Kiwi. The term Loonie actually comes from the first Canadian dollar coin.
Then there are currency pairs which are simply called the 'crosses', and these involve non US dollar pairs. Some of the more popular crosses include:
EUR/JPY - This is the Euro dollar against the Japanese yen GBP/JPY - This is the Great Britain pound against the Japanese yen, and EUR/GBP - This is the Euro dollar against the Great Britain pound.
There are quite a few others, but these three are probably the most popular traded. A lot of traders actually like to trade their home currency as they feel they have a better understanding of it. Me, I'm Australian, but I rarely trade the Aussie as I am very comfortable trading the majors for the majority of my trades.
So what do all the numbers mean when the currency pairs are traded together?
The first currency mentioned is what they call the 'base currency' and it is being compared to the 2nd currency, which is called either the 'quote currency' or the 'counter currency'.
If I watch my local news, and near the end they have a very brief financial report where the newsreader may say something like:
"The Aussie dollar was down today against the greenback, reaching a low of 71 cents"
Basically what they are saying is that the Australian dollar has dropped in value compared to the US dollar, and that one Australian dollar is equivalent to 71 cents US. As the US dollar is the major currency of the world, you will find most financial reports will compare your local currency to it, and even some of the other majors such as the Euro or the Great Britain pound.
Using this same example of the Aussie at 71 cents, if I were to travel overseas, say to the US where I would need US dollars, then I would be hoping for as high a rate as possible so I get more for my Australian dollar. So if the exchange rate moved up to 75 cents, then one Australian dollar would be worth 75 cents US.
You may see the quote for the AUD/USD similar to this: 0.7125 / 0.7128
First of all, the quote shows how many units of the quote/counter currency are needed to buy one unit of the base currency. In this case, the US dollar is the quote/counter currency and the Australian dollar is the base currency.
Confused yet? I hope not as there is plenty to come, and even though there is a fair bit of information, it does get easier to understand as you become more familiar with it.
Article by Jim Brown A lot more information on Forex Trading can be found at http://www.forexmt4tradingrobots.com, but if Stock Trading is more your thing, then please check out http://www.accuratestocktrading.com
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