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  Latest
Make Money in Forex by Avoiding These Psychological Risks May 24, 2022
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How Currencies are Traded in the FOREX Market

Yanuar TJ by Yanuar TJ
April 20, 2021
in Article
Reading Time: 2 mins read
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Currencies are traded in dollar amounts called “lots”. At 100:1 leverage, one lot is equal to $1000 which controls $100,000 of a given currency. This leverage is known as “margin” and some brokers will allow traders even higher leverage than 100:1. This super high leverage is one of the reasons that Forex trading has become so popular.

Currencies are always traded in pairs. Each pair has a unique notation that expresses which currencies are being traded. The symbol for a currency pair will always be in the form ABC/XYZ. ABC/XYZ is not a real currency pair, just an example of how currency pairs are stated in the market. In this particular example, ABC is the symbol for one country’s currency and XYZ is the symbol for another country’s currency.

Listed below are some common symbols used. There are symbols for other currencies as well, but these are the most commonly traded ones.

USD – The US Dollar
EUR – The currency of the European Union “EURO”
GBP – The British Pound
JPN – The Japanese Yen
CHF – The Swiss Franc
AUD – The Australian Dollar
CAD – The Canadian Dollar

As mentioned earlier, currencies are traded in pairs in Forex trading. Thus, a trade always compares one currency to another in terms of how the two currency prices will move relative to each other. Some of the common pairs traded are:

EUR/USD Euro / US Dollar
USD/JPY US Dollar / Japanese Yen
GBP/USD British Pound / US Dollar
USD/CAD US Dollar / Canadian Dollar
AUD/USD Australian Dollar/US Dollar
USD/CHF US Dollar / Swiss Franc
EUR/JPY Euro / Japanese Yen

When you place an order to buy the EUR/USD, you are actually buying the EUR and selling the USD. If you were to sell the pair, you would be selling the EUR and buying the USD. So if you buy or sell a currency pair, you are buying/selling the base currency. You are always doing the opposite of what you did with to base currency with the counter currency. In Forex trading, currencies are traded on a price interest point (know as a “pip”)system. Each currency pair has its own pip value. Since we have a listed currency pair (i.e., EUR/USD, EUR/AUD), we need a way to talk about its associated number or price. When you see a price quote, you’ll see something listed like this:

USD/JPY: 118:51/55

The first component (before the slash) refers to the bid price (what you obtain in JPY when you sell USD). In this example, the bid price is 118.51. The second component (after the slash) is used to obtain the ask price (what you have to pay in JPY if you buy USD). In this example, the ask price is 118.55. The difference between the bid and the ask price is referred to as the spread. In the example above, the spread is .04 or 4 pips.

Tags: Basic
ⓘ Some contents provide links to third-party news and current events as a convenience to you. We have not reviewed and don't endorse the contents of these sites. Please always do your own research. Mira FX does not endorse any companies, products or services which are represented on this article. Mira FX is not liable for any damage or loss, including but not limited to, any loss of investment, which may be based either directly orindirectly on the use of or reliance on such information. Before deciding whether or not to take part in foreign exchange or financial markets or any other type of financial instrument, please carefully consider your investment objectives, level of experience and risk appetite.

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