Yes. FOREX trading refers to transactions in which the investor buys one currency while selling the other currency. Currencies are traded through agents or brokers in pairs, such as AUD/USD or GBP/JPY.
Major Global Currency Pairs
|Currency Pair||Countries||FX Geek Speak|
|EUR/USD||Eurozone / United States||euro dollar|
|USD/JPY||United States / Japan||dollar yen|
|GBP/USD||United Kingdom / United States||pound dollar|
|USD/CHF||United States/ Switzerland||dollar swissy|
|USD/CAD||United States / Canada||dollar loonie|
|AUD/USD||Australia / United States||aussie dollar|
|NZD/USD||New Zealand / United States||kiwi dollar|
Take the NZD for example. NZ stands for New Zealand and D stands for dollar.
The currency pairs shown in the above chart are often referred to as “major currency pairs”, because they are most heavily traded.
Participants in the FOREX market mainly include commercial banks, which are the backbone of the FOREX market. Most large FOREX trades are executed at FOREX banks.
They also include FOREX brokers who provide FOREX trading brokerage services. Usually, they must be approved by a local central bank branch. FOREX brokers generally do not trade FOREX. They only serve as a bridge between FOREX buyers and sellers on a handling fee or commission basis.
In addition, there are importers and exporters and other FOREX suppliers and demanders. Importers and exporters are not only FOREX demanders (when they import goods) but also suppliers (when they export goods). Other FOREX suppliers and demanders refer to non-trade FOREX buyers and sellers, such as tourists.
Finally, there are FOREX speculators, multinational corporations, central banks and FOREX administrative agencies engaged in FOREX trading. CFD trading participants mainly include trading brokers, speculators, their liquidity providers and exchanges.
Trading hours in the FOREX market are divided into four sessions: Sydney hours, Tokyo hours, London hours, and New York hours. Following is a schedule of the opening and closing hours for each market:
|Time Zone||Greenwich Mean Time GMT|
|New York Open||12:00pm|
|New York Close||9:00pm|
Greenwich Mean Time GMT
|New York Open||1:00pm|
|New York Close||10:00pm|
As the schedule shows, there are always some trading hours overlapping for two markets. These hours are the busiest trading time in a day with much greater trading volumes, as most investors choose to trade during such hours.
FOREX is quoted in currency pairs, such as GBP/USD or USD/JPY. In each of your FOREX trades, you buy one currency and at the same time you sell another. Take GBP/USD for example: GBP/USD = 1.51258
The currency to the left of the slash ("/") is called the base currency (the pound in the example), and the currency to the right is the counter currency (the dollar in the example). The base currency is the "basis" on which you buy and sell currencies. If you buy GBP/USD, that means you buy the base currency and sell the counter currency, that is, you "buy pounds and sell dollars." If you believe the base currency will appreciate relative to the counter currency (the exchange rate rises), then you should buy it. Conversely, if you believe that the base currency will depreciate relative to the counter currency (the exchange rate drops), then you should sell it.
Lot size is a trading unit. For example, 1 lot of London gold is 100 ounces, and 1 lot in FOREX trading represents 100,000 base currency instead of 100,000 dollars. If your base currency is the US dollar, 1 lot represents USD100,000; if your base currency is the Euro, 1 lot means EUR100,000.
|Lot||Number of Units|
A "pip" denotes the minimum unit of change in the price of a financial instrument. In most cases it refers to the last decimal or digit of the price of a financial instrument. Suppose the price of EUR/USD was 1.13452 /1.13460 (bid price/ask price). If the price of EUR/USD is 1.13482 / 1.13490 now, it changes by 0.00030 or 30 pips.
We use a 100,000 unit (1 standard lot) contract to demonstrate how a standard lot affects the value of a pip.
1. The exchange rate of USD/JPY is 119.801, and (0.001 / 119.801) × 100,000 = USD 0.835 / pip.
2. The exchange rate of USD/CHF is 1.00554, and (0.00001 / 1.00554) × 100,000 = USD0.994 / pip.
The formula will be slightly different when the base currency is not the US dollar.
3. Suppose the exchange rate of EUR/USD is 1.19301, then (0.00001 / 1.19301) × 100,000 = about EUR0.838.
Converted into the US Dollar, the value of a pip is 0.838 × 1.19301 = USD1.
Or in the simpliest manner, the pip value may be calculated directly in the counter currency:
0.00001 x 100,000 = $1
The bid price is the price at which you sell the base currency and buy the counter currency in the FOREX market. It is displayed on the left side of the quote sheet. The ask price is the price at which you buy the base currency and sell the counter currency. It is displayed on the right side of the quote sheet. For example, the EUR/USD quote is 1.13452/72 and the ask price is 1.13472. That means you can buy EUR1 for USD1.13472. The ask price is sometimes referred to as the bank bid price. The spread is the difference between the ask and bid price in the quote, i.e., the client's trading cost.
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