The next time when we met I felt that Gaurav was impatient to know more
about Forex trading.
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I am really eager to go deep into Forex, so what am I
supposed to learn today?
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Today I will give you general information about
currencies. So let’s start from the beginning. As you know in commodity market
a product is sold or bought with this or that currency. And how does it operate
in Forex market if the currency itself is the product? The answer is simple. In
this market currencies are exchanged for one another.
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You mean that I can trade with any currency in Forex?
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Yes, you are right. The currencies are so many in
number that The International Committee of Standardization has established a
special ISO code for each currency, consisting of three latin letters – the
first two letters indicate the country of the currency and the last one the
name of that currency. For example INR is the abbreviation of India and Rupee.
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Oh, great, so USD is United States and dollar, GBP –
Great Britain and Pound, JPY – Japan and Yen.
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Yes you are completely right, my friend. But you see
not all currencies are important in Forex market. There are such which are
traded more than others. Being the World’s Reserve currency USD is traded
mostly. Accordingly currency pairs including US dollar are called major currency
pairs. They are the following ones:
EURUSD – Euro vs US
dollar
GBPUSD – British pound vs US Dollar
USDJPY – US Dollar vs
Japanese yen
USDCHF – US Dollar vs
Swiss franc
AUDUSD – Australian
dollar vs US dollar
USDCAD – US dollar vs
Canadian dollar
NZDUSD – New
Zealandian dollar vs US dollar
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And are there currency pairs which do not include USD?
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But I don’t understand one thing, Manoj. Why in one
pair for example USD stands first, in another second?
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So, see, if the price of one currency is expressed in
US dollars such quotation is called direct quotation.
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So, GBPUSD, EURUSD are direct quotations, right?
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Yes, it is right. And if the price of USD is expressed
in a currency, such quotation we call indirect quotation, e.g. USDCHF, USDJPY.
As you see currencies are traded in pairs which are called currency pairs. The
first currency in the pair is base currency and the second one is quoted
currency.
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So, in EURUSD EUR is base currency and USD is quoted
currency, am I right?
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Completely right. Let’s continue, each currency pair has
its exchange rate and we call it quotation. Quotation is the price of one
currency expressed in the price of another currency. For example when you see
the following quotation EURUSD 1.3104 what do you understand from it?
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I guess that for 1EUR you can give 1.3104 US dollars.
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Great, Gaurav, you have understood everything.
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Now, let’s conclude. In Forex market we trade with
currency pairs. Each currency pair has its exchange rate or quotation. The
first currency in the pair is called base currency, the second one quoted
currency. We can assume for better understanding that the base currency is your
product and the quoted currency your money. In Forex market there exist many
currency pairs. Those which include US dollar are major currency pairs, and
those where USD is absent are called major currency cross pairs.
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Thank you, my friend. You really gave me valuable
information. Now I suppose that it is time for me to enter Forex India.