The forex market is one of the largest
in the world if not the greatest. 9 billion, more than 3 times bigger than the
stock / stock market and more than 5 times larger than futures, give Forex
traders almost unlimited liquidity and flexibility. It has been estimated that
approximately $ 2 trillion US dollars held by currency exchange every day.
The currencies of the world are in a floating exchange
rate and are always traded in pairs, for example EUR / USD or USD / JPY or USD / INR.
The Forex currency pair is a single unit, an instrument that is bought or sold
in the Forex market. Each currency pair is expressed in counter units.
currency needed to get one unit of the base currency
The first currency is called the base currency and
The second quote currency is called the quote or counterpart currency. Base
currency is the basis for the sale or purchase transaction. For example, if you put
a BUY order in the EURO / USD pair, you are effectively buying euros in dollars and
sale of US dollars.
Example
EURO / USD
Interest rates must fall in the US AND
therefore, he believes that the euro will appreciate due to the fact that the European Union has
higher interest rates. Therefore, to take advantage of this and make a
betting against the US dollar WOULD BUY EURO / USD. This purchase order is effectively
buying euro dollars and selling US dollars.
Alternatively, if you think euros in dollars
fall due to economic problems such as high inflation and rising unemployment
and you want to make a trade that EURO dollars will fall against the US dollar
you would need to SELL the EURO / USD currency pair. This sell order is also known as
SHORT is effectively selling euro dollars and buying US dollars.
So, in summary:
BUY EURO / USD (Long the EURO) – Buy EURO Sell USD
Assuming the EURO will appreciate against the USD
SELL EURO / USD (Short the EURO) – Sell EURO Buy USD
The USD is supposed to appreciate against the EURO.