Placing a Trade

Placing a trade in the Forex market is simple. The mechanics of a trade are virtually identical to those found in the markets you are trading now. A Forex trade is a trade in which one currency is valued against another.

Symbols to Trade
Forex Symbol Currency Pairs Terminology
EURUSD Euro / U.S. Dollar Euro
USDJPY U.S. Dollar / Japanese Yen Dollar-Yen
GBPUSD British Pound / U.S. Dollar Sterling
USDCHF U.S. Dollar / Swiss Franc Dollar-Swiss
USDCAD U.S. Dollar / Canadian Dollar Dollar-Canada
AUDUSD Australian Dollar / U.S. Dollar Aussie
EURGBP Euro / British Pound Euro-Sterling
EURJPY Euro / Japanese Yen Euro-Yen
EURCHF Euro / Swiss Franc Euro-Swiss
GBPJPY British Pound / Japanese Yen Sterling-Yen
The symbol for each Forex contract is based on the two currencies:
EURUSD = Euro Dollar vs. US Dollar.

Also, each Forex contract is a price for the first currency in the symbol name, quoted in the second currency in the symbol name. In the case of the Euro vs. US Dollar, where the exchange rate is approximately $1.30, it would take USD 1.30 to purchase 1.00 Euro. Each Forex contract covers a fixed number of units of the first symbol in the symbol name, usually 100,000.

Forex exchange rate prices move in fixed minimum price movements called pips. A pip is the minimum price move an exchange rate can make.

Closing out a Position
An open position is one that is live and ongoing. As long as the position is open, its value will fluctuate in accordance with the exchange rate in the market. Any profits and losses will exist on paper only and will be reflected in your margin account. To close out your position, you conduct an equal and opposite trade in the same currency pair.

For example, if you have bought (“gone long”) one lot of EURUSD (at the prevailing offer price) you can close out that position by subsequently selling one EURUSD lot (at the prevailing bid price).

Forex Introduction : Interbank

The term INTERBANK discussed in FX terminology simply means ‘between banks and large institutions’ where information is exchanged about the current rate at which their clients or they could buy or sell a currency. However, the term ‘Interbank’ today also means anybody who is prepared to buy or sell a currency. Interbank also implies that Forex is not traded on an exchange like equities and futures. The quoted prices for a Forex are based on information from the top banks and large institutions.

Venturing Into Non-Dollar Currencies

Although it is highly advisable for American investors not to rely too much on the domestic market, any investments in non-dollar currencies entail exchange-rate risks. Nonetheless, these risks can be managed and even turned into opportunities. Read on to learn about how to manage the risk in foreign investments.Essential Diversification – But At a Price The positive side of foreign investments is that they are an important and often essential part of portfolio diversification. Making foreign investments, however, does not mean that the investor is speculating in foreign currencies, although the risk may still be substantial.

After all, a low American dollar, for example, is bound to rise at some point, which will substantially reduce the value of money coming back into the U.S. On the other hand, a high U.S. dollar means the exact opposite to non-American investors because they will be looking to take their money out of the U.S. and return it to their home countries, where it will be more valuable. Currency FluctuationsFor example, in early 2000, the dollar was worth 1.25 euros, but by the end of 2004, it was worth only 0.73 euros. During this period, foreigners investing in America saw the effective value of their investments decline by 40%.

Then there is the issue of yen loans. For years, the incredibly low Japanese interest rates encouraged people to borrow yen to invest elsewhere. However, if the yen were to rise substantially before such a loan is repaid, the borrower could be in trouble. The gains from low interest rates can rapidly be wiped out and worse. In fact, many Austrians took out yen loans in the '90s and some of them wound up with losses of up to 50%, as interest rates moved substantially over time.