The
Seven Most Traded Currencies in FOREX
by Omar Vargas
Currencies are traded in dollar amounts called
“lots”. One lot is equal to $1,000, which controls $100,000
in currency. This is what is known as the "margin". You
can control $100,000 worth of currency for only 1,000 dollars. This
is what is called “High Leverage”.
Currencies are always traded in pairs in the
FOREX. The pairs have a unique notation that expresses what currencies
are being traded. The symbol for a currency pair will always be
in the form ABC/DEF. ABC/DEF is not a real currency pair, it is
an example of a symbol for a currency pair. In this example ABC
is the symbol for one countries currency and DEF is the symbol for
another countries currency.
Here are some of the common symbols used in the
Forex:
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
There are symbols for other currencies as well,
but these are the most commonly traded ones.
A currency can never be traded by itself. So
you can not ever trade a EUR by itself. You always need to compare
one currency with another currency to make a trade possible.
Some of the common PAIRS are:
EUR/USD Euro / US Dollar
"Euro"
USD/JPY US Dollar / Japanese Yen
"Dollar Yen"
GBP/USD British Pound / US Dollar
"Cable"
USD/CAD US Dollar / Canadian Dollar
"Dollar Canada"
AUD/USD Australian Dollar/US Dollar
"Aussie Dollar"
USD/CHF US Dollar / Swiss Franc
"Swissy"
EUR/JPY Euro / Japanese Yen
"Euro Yen"
The listed currency pairs above look like a fraction.
The numerator (top of the fraction or "left" of the /
however you want to SEE it) is called the base currency. The denominator
(bottom of the fraction or "right" of the /however you
want to SEE it) is called the counter currency. When you place an
order to buy the EUR/USD, for instance, 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.
If this seems confusing then you're in luck.
You can always get by with just thinking of the entire pair as one
item. Then you are just buying or selling that one item. Thinking
like this will still enable you to place trades. You only need to
be aware of the base/counter concept for Fundamental Analysis issues.
So why is it important to know about the base/counter
currency? The base/counter currency concept illustrates what is
actually taking place in a Forex transaction. Some of you reading
this, know that short-selling was restricted in the stock market
*(Short-selling is where you sell a stock/currency/option/commodity
first and then try to buy it back at a lower price later). But in
the FOREX you are always buying one currency (base) and selling
another (counter). If you sell the pair you are simply flipping
which one you buy and which one you sell. The transaction is essentially
the same. This allows you to short-sell with no restrictions.
You want to be able to short-sell with no restrictions
so you can make money when the market drops as well as when it rises.
The problem with traditional stock market trading is that the market
has to go up for you to make money. With FOREX trading you can make
money in all directions.
