Types of currency pairs
Volatility in currency pairs and how to deal with it
Better indicators that will help you operate with currency volatility.
Now that you know where to operate this year, we are going to teach you how to invest in currencies, and for that you need to know what a currency pair is.
Currencies are classified according to an international standard, the ISO standard. In a currency pair there are always two currencies. Usually, the currency symbols are 3 letters.
The codes are composed of the first two letters that define the name of the country and the last letter the name of the currency. Thus:
The US dollar is the USD
The pound sterling is GBP
The Japanese yen is JPY
Two codes make a currency pair. All currencies are quoted for two. The reason is that to express the value of one you need the other.
For example, in the euro dollar we will measure the value of the euro in dollars. This can be interpreted as the price of 1 euro in dollars.
The first currency of a currency pair is also called the base currency, and the second, a quoted currency.
Invest in currency pairs - Exchange rate
Before investing in currencies, one must understand the exchange rate. Currency quotes are currency prices that can be found on trading platforms.
Currency pairs consist of two currencies
Here is an example: EURUSD 1.1234 / 1.1235
Invest in currencies- Spread
In the stock market as in the currency market, the spread is the difference between the purchase price and the sale price. In other words, the difference between the price of the offer and the price of the demand.
The spread in trading is measured in pips or points.
In the currency market, a pip is the fourth digit after the decimal point in the exchange rate
Let's say that the prices of the euro dollar pair are 1.1234 / 1.1235. The difference between the bid and ask price is 0.0001. This is equivalent to saying that the spread is a point or a pip.
For several years, the quotes had 4 decimals, so the pip was the last. However, currently Forex brokers and CFDs offer their clients quotes with 5 decimals. In this case, the pip is the fourth decimal and there will be a zero at the end.
Investing in currencies - What we buy and what we sell
For many beginning traders it is a bit difficult to understand what they buy and sell when they trade currencies. However, the answer is very simple:
We always buy and sell in relation to the first currency of the quote.
EURUSD purchase order - we buy the euro and sell the dollar, we anticipate a price increase
EURUSD sales order - we sell the euro and buy the dollar, we anticipate a decrease in the price