FOREX: AMOUNT OF FUNDS
The fall in the value of the currency and the potential return of the gold standard that was abolished in the 1970s is truly a hot topic. Experts propose a balanced gold-based monetary system, despite several system weaknesses. One of the most striking weaknesses is that there is no such foreign exchange market. In fact, it is the gold standard that drives Forex.
FEEL THE DIFFERENCE
Forex is a short-term trading market, where a trader aims to gain profit from fluctuations in price exchange rates. The maximum duration of trading on Forex is several months, while on the stock market can last a maximum of 5-7 years.
The foreign exchange market is centralized. Various banks that trade in this market use a variety of different software. Most individual traders cannot enter the interbank Forex market, because the standard trading volume in this market varies from $ 100,000 to $ 1 million. A handling center acts as an intermediary between banks and traders.
All foreign currencies are quoted in US dollars. Each quote has four digits after the point. For example, the EUR / USD quote looks like this: 1.2836. The standard change in quotation is 1 tick in the fourth digit.
The quoted 1.2836 means that a trader must pay $ 128,360 to buy 100,000 euros. If there is a change in one tick in the price, the client must pay $ 128,370, which is another 10 dollars.
Thanks to modern technology, there is a more accurate quotation consisting of five digits after the point, which reduces the risk of errors when entering the market.
DIRECT AND INDIRECT QUOTATIONS. CROSS RATES
The value of a foreign currency is quoted in US dollars. However, some trading terminals include direct and indirect currency values and even cross rates. Direct quotations are foreign exchange rates quoted as domestic currency per one US dollar. They have the symbol of trading foreign currencies as numerators and symbols of the US dollar as the denominator.
The value of the EUR / USD pair is quoted as 1 euro on a US dollar scale. This shows the amount of US dollars needed to buy one euro. This is a direct quote. Other examples of direct quotations are GBP / USD (British pound against US dollar), AUD / USD (Australian dollar against US dollar), and NZD / USD (New Zealand dollar against US dollar). When buying this pair, traders buy foreign currency and sell US dollars. When he sells it, he sells foreign currency and buys US dollars.
Indirect quotation is the US dollar exchange rate on a foreign currency scale. The numerator is the symbol of the US dollar and the denominator is another foreign currency symbol. For example, USD / CAD is a quote of US dollars in Canadian dollars indicating the amount of Canadian dollars paid for one US dollar. USD / JPY (US dollar against Japanese yen), USD / SEK (US dollar against Swedish krona), and USD / CHF (US dollar against Swiss franc) are also indirect currency pairs. By buying this currency pair, traders buy US dollars and sell foreign currencies. Conversely, when selling, he sells US dollars and buys foreign currency.
Cross rates are quotations of one foreign currency on another foreign currency scale. Because all foreign currencies are quoted in US dollars, cross rates show the quote of foreign currency through the prism of the US dollar exchange rate. Currency pairs cross rates are the most popular Japanese yen denominated and Swiss francs: EUR / JPY (quotation of euro denominated in Japanese yen), GBP / JPY (quotation of British pound denominated in Japanese yen), CHF / JPY (quotation of Swiss franc denominated in Japanese yen), GBP / CHF (quotation of British pound denominated in Swiss franc), and EUR / CHF (quote of euro denominated in Swiss franc).
In 2011, the Swiss National Bank limited the franc to 1.20 CHF per euro. As a result, the franc market fell, which is shown in the cross rates of foreign currencies denominated in the Swiss national currency.
The cross rate currency pair is calculated based on the following formula:
FOR / FOR = FOR / USD * USD / FOR, where FOR is a foreign currency.
MAJOR CURRENCIES, COMMODITIES AND US DOLLAR INDEX
The main currencies included in international reserves of various countries are the US dollar, euro, British pound and Japanese yen. These four currencies are called major currencies.
The Canadian dollar (CAD) and Australia (AUD) are strong currencies, but the circulation of the currency is limited. These two currencies are called commodity currencies because their value depends on the movement of raw material prices. The New Zealand dollar is also included in this group.
Russian Ruble (RUB), Swedish krona (SEK), Norwegian Krona (NOK), Danish Krona (DKK), Singapore dollar (SGD), Turkish lira (TRY), Indian rupee (INR), South African rand (ZAR), won South Korea (KRW), and the Polish zloty (PLN) are considered stable currencies, but they only circulate at the regional level.
The Chinese Yuan (CNY) whose exchange rate is determined by the People’s Bank of China is not a currency that can be freely exchanged.
The US Dollar Index shows the greenback’s exchange rate against a basket of foreign currencies. There are several types of USD index calculated using various formulas. The classic US Dollar Index shows the percentage price of the greenback against six major currencies such as the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The price of the US dollar in 1973 was given a percentage of 100%.
Forex is a market that prioritizes small changes in quotations. Weekly fluctuations remain in the range of 0.5% -2%, which makes leverage very helpful. Handling centers that receive quotations from the interbank currency exchange market offer 1: 1-1: 500 leverage.
Standard leverage on Forex is 1: 100 which allows traders to open a buy or sell position with a volume of up to $ 100,000. Is this a large or small amount? Quotations of EUR / USD pairs may change 100 ticks per 24 hours. So, if you trade this pair using 1: 100 leverage, you can profit or even lose $ 100 in one day. To minimize risk, you can reduce your leverage or the volume of positions you open.