Forex Basics
When
trading forex, every major currency has a three-letter symbol and forex
trading
instruments consist of two of these symbols.
Before we go on with this tutorial, it is essential for you to
learn the
major currency symbols by heart.
|
Symbol |
Country |
Currency |
Nickname |
|
USD |
United
States |
dollar
|
buck |
|
EUR |
Euro
members |
euro |
fiber |
|
JPY |
Japan
|
yen |
yen |
|
GBP |
Great
Britain |
pound
|
cable |
|
CHF |
Switzerland
|
franc
|
swissy |
|
CAD |
Canada
|
dollar
|
loonie |
|
AUD |
Australia
|
dollar
|
aussie |
|
NZD |
New
Zealand |
dollar |
kiwi |
|
NOK |
Norway |
krone |
kroner |
|
SEK |
Sweden |
krone |
kronor |
|
DEK |
Denmark |
krone |
kroner |
As
we mentioned earlier, currencies are traded in pairs a base currency
and a counter
or a quote currency for example let’s assume that EUR/USD=1.1914
looking at the
EUR/USD instrument, we can say that the base currency is EUR (euro) and
the
counter currency is USD (US dollars), followed by the quote that tells
us that
we need 1.1914 units of the counter currency USD to buy 1 unit of the
base
currency EUR.
There
are two main order types in forex. The first is the buy (or long
order), the
second is sell (or short order). For a better understanding of the two
order
types, let’s take a look at this example:
EUR/USD
= 1.1914 (13:00 AM)
We
open a long position on EUR/USD with a contract size of X lots
At
17:00 AM the price changes to the following:
EUR/USD
= 1.1920 (17:00 AM)
If
we close the position at (17:00 AM), then we have made a profit of
(1.1920 –
1.1914) * X = 6 Pips * x lots
On
the other hand, let’s assume a similar situation: EUR/USD=1.1914 (13:00 AM)
We
open a long position on EUR/USD with a contract size of X lots
At
(17:00 AM) the price changes to the following:
EUR/USD=1.1920
(17:00 AM)
If we close the position at (17:00 AM), we have made a loss of (1.1920 – 1.1914) * X = 6 Pips * x lots.