When we buy goods at the store, the price tag on the product reflects the value of the goods in terms of the national currency. And we have no questions, if we are going to buy the book price of $ 100 - we take a book, preparing a $ 100 and go to the checkout.
Forex trading is always one currency relative to other currencies, so the price tag is simply not enough. Suppose we are dealing with the US dollar and the Euro. To assess the value of currencies, we need to know the value of one US dollar, expressed in euro or the value of the euro expressed in US dollars. That is, we need to know the exchange rate of one currency against another. Such exchange rate reflected quotation type A / B. In our case with the Euro and the US dollar quotation looks like EUR / USD.
The currency, which stands up to the mark "/" is called the base currency (base currency), and the currency, which is after the sign "/" is called the quote currency(counter or quoted currency). For any pair of currencies in the Forex currency position in the quotation is strictly defined. For the euro and the US dollar, it looks exactly like EUR / USD, and never presented as USD / EUR in the official lists of quotations. Thus, EUR - the base currency and the USD - the quote currency.
What determines the position of the currency in the quote? Let us digress for a while from Forex and consider a single country, such as Japan. In each country, historically its rules of recording exchange rates for each foreign currency. These rules are explained recording, usually only the convenience of information. Agree, it is more comfortable to say that a dollar can buy or sell for 104.78 Japanese yen than to say that one Japanese Yen can buy or sell for 0.0095 US dollars. That is why the exchange rate of the Japanese yen against the US dollar seems quotation USD / JPY, and not vice versa. The recording method of the exchange rate at which the cost per unit of foreign currency expressed in terms of a certain number of units of the national currency is called a direct quotation. A method of recording the same exchange rate at which the cost per unit of national currency expressed in terms of a certain number of units of a foreign currency is called a direct quote. In our example, the USD / JPY - Japan's direct quotation.
Since Forex is no concept of the national currency, as the main global reserve currency is the US dollar, to refer to the US dollar quotations used recording rules of exchange rates prevailing in the countries of Compliance. The concepts of direct and indirect quote on Forex are used in relation to the US dollar. With some currency pairs the US dollar will be the base currency and the quote will be reversed. With some currency pairs the US dollar would be the quote currency, and is a direct quotation. For example, in tandem with the Japanese Yen (USD / JPY) US dollar base currency appears to reverse the quotation, and in tandem with the British pound sterling (GBP / USD) - the quote currency in direct quotation.
When we say that the quotation of A / B is X, we mean that one unit of the base currency A can buy or sell for X units of quoted currency B.In our example, with the Euro and the US dollar, if we say that the quotation EUR / USD is 1.2845, we understand that one euro we can buy or sell for 1.2845 US dollars. In other words, the operations of purchase / sale always refer to the base currency. The following table shows examples of quotations on Forex against the US dollar.
From the table it can be concluded that one Euro sold / bought for 1.2845 US dollar, the dollar sold / bought for 97.50 Japanese Yen, etc.
It is important to know that in some lists of quotations in the Internet focus on the forward / reverse quotation is done and assumes that the user is aware of, knowing which currency in the quotation is the base. For example, the Internet can find the quote, written as JPY / USD 97.50, but actually refers to reverse quotations against the US dollar, ie, USD / JPY 97.50. Sometimes quotes in relation to the US dollar are designated only one currency, for example JPY 97.50. Therefore, it is important to learn a couple of quotes that you are going to use in the Forex and know what quotation (forward or reverse), it is relative to the US dollar, that is, you need to know basis quotes in pairs! Otherwise, you may be mistaken diametrically opposed decision of purchase / sale. This is especially true with respect to the Swiss franc (CHF), which is in tandem with the US dollar is always quote currency. That is the kind of record CHF 1.1623 means that one US dollar is sold / bought for 1.1623 Swiss francs, and not vice versa.
In addition to understanding the quotes themselves are very important to understand the direction of change of quotations. After all, our main goal in the forex - it is, as in any transaction, buy cheap and sell expensive. Forward and reverse direction changes in exchange quotations have opposite meanings. For direct quotes in relation to the US dollar, such as GBP / USD, an increase in quote means the rise of the pound sterling and the depreciation of the US dollar, because one pound is now possible to buy / sell for more dollars. For indirect quote in relation to the US dollar, such as USD / JPY, increasing the quote means the rise of the US dollar and the depreciation of the Japanese yen, as one US dollar can now buy / sell for a large number of Japanese Yen. That is why it is important not to confuse the type of quotes in relation to the currencies of interest for operations on Forex. This principle is shown in the figure represents a simplified graph changes in prices.
In the table above you can see that for different quotes used different accuracy values (a different number of digits after the decimal point). The minimum change in the value quotes called point (point, pip) and for different quotations it is different. For example, to quote EUR / USD one point is equal to 0.0001, while USD / JPY quotation One point equals 0.01. It should be noted that senior figures quotes (big figure) tend to change quite slowly over time.
Of great interest is the value of one point, expressed in US dollars. In the case of direct quotations in relation to the US dollar is not a problem, since the point is already expressed in US dollars. In the case of the inverse of the US dollar value of one point quotations in US dollars should be calculated according to a special formula, which will be discussed later, when we will learn to calculate the profit / loss from the transaction.
In this chapter, all quotes were expressed in the spot (current) prices. We deliberately did not complicate the material chapter introduces the concept of the purchase price, sales price, the value of the spread and cross-rates. It goes about these concepts in the following chapters.
Forex trading is always one currency relative to other currencies, so the price tag is simply not enough. Suppose we are dealing with the US dollar and the Euro. To assess the value of currencies, we need to know the value of one US dollar, expressed in euro or the value of the euro expressed in US dollars. That is, we need to know the exchange rate of one currency against another. Such exchange rate reflected quotation type A / B. In our case with the Euro and the US dollar quotation looks like EUR / USD.
The currency, which stands up to the mark "/" is called the base currency (base currency), and the currency, which is after the sign "/" is called the quote currency(counter or quoted currency). For any pair of currencies in the Forex currency position in the quotation is strictly defined. For the euro and the US dollar, it looks exactly like EUR / USD, and never presented as USD / EUR in the official lists of quotations. Thus, EUR - the base currency and the USD - the quote currency.
What determines the position of the currency in the quote? Let us digress for a while from Forex and consider a single country, such as Japan. In each country, historically its rules of recording exchange rates for each foreign currency. These rules are explained recording, usually only the convenience of information. Agree, it is more comfortable to say that a dollar can buy or sell for 104.78 Japanese yen than to say that one Japanese Yen can buy or sell for 0.0095 US dollars. That is why the exchange rate of the Japanese yen against the US dollar seems quotation USD / JPY, and not vice versa. The recording method of the exchange rate at which the cost per unit of foreign currency expressed in terms of a certain number of units of the national currency is called a direct quotation. A method of recording the same exchange rate at which the cost per unit of national currency expressed in terms of a certain number of units of a foreign currency is called a direct quote. In our example, the USD / JPY - Japan's direct quotation.
Since Forex is no concept of the national currency, as the main global reserve currency is the US dollar, to refer to the US dollar quotations used recording rules of exchange rates prevailing in the countries of Compliance. The concepts of direct and indirect quote on Forex are used in relation to the US dollar. With some currency pairs the US dollar will be the base currency and the quote will be reversed. With some currency pairs the US dollar would be the quote currency, and is a direct quotation. For example, in tandem with the Japanese Yen (USD / JPY) US dollar base currency appears to reverse the quotation, and in tandem with the British pound sterling (GBP / USD) - the quote currency in direct quotation.
When we say that the quotation of A / B is X, we mean that one unit of the base currency A can buy or sell for X units of quoted currency B.In our example, with the Euro and the US dollar, if we say that the quotation EUR / USD is 1.2845, we understand that one euro we can buy or sell for 1.2845 US dollars. In other words, the operations of purchase / sale always refer to the base currency. The following table shows examples of quotations on Forex against the US dollar.
Quotation
|
Meaning quotes
|
EUR / USD
|
1.2845
|
USD / JPY
|
97.50
|
GBP / USD
|
1.6260
|
USD / CHF
|
1.1623
|
AUD / USD
|
0.6735
|
USD / CAD
|
1.2535
|
From the table it can be concluded that one Euro sold / bought for 1.2845 US dollar, the dollar sold / bought for 97.50 Japanese Yen, etc.
It is important to know that in some lists of quotations in the Internet focus on the forward / reverse quotation is done and assumes that the user is aware of, knowing which currency in the quotation is the base. For example, the Internet can find the quote, written as JPY / USD 97.50, but actually refers to reverse quotations against the US dollar, ie, USD / JPY 97.50. Sometimes quotes in relation to the US dollar are designated only one currency, for example JPY 97.50. Therefore, it is important to learn a couple of quotes that you are going to use in the Forex and know what quotation (forward or reverse), it is relative to the US dollar, that is, you need to know basis quotes in pairs! Otherwise, you may be mistaken diametrically opposed decision of purchase / sale. This is especially true with respect to the Swiss franc (CHF), which is in tandem with the US dollar is always quote currency. That is the kind of record CHF 1.1623 means that one US dollar is sold / bought for 1.1623 Swiss francs, and not vice versa.
In addition to understanding the quotes themselves are very important to understand the direction of change of quotations. After all, our main goal in the forex - it is, as in any transaction, buy cheap and sell expensive. Forward and reverse direction changes in exchange quotations have opposite meanings. For direct quotes in relation to the US dollar, such as GBP / USD, an increase in quote means the rise of the pound sterling and the depreciation of the US dollar, because one pound is now possible to buy / sell for more dollars. For indirect quote in relation to the US dollar, such as USD / JPY, increasing the quote means the rise of the US dollar and the depreciation of the Japanese yen, as one US dollar can now buy / sell for a large number of Japanese Yen. That is why it is important not to confuse the type of quotes in relation to the currencies of interest for operations on Forex. This principle is shown in the figure represents a simplified graph changes in prices.
In the table above you can see that for different quotes used different accuracy values (a different number of digits after the decimal point). The minimum change in the value quotes called point (point, pip) and for different quotations it is different. For example, to quote EUR / USD one point is equal to 0.0001, while USD / JPY quotation One point equals 0.01. It should be noted that senior figures quotes (big figure) tend to change quite slowly over time.
Of great interest is the value of one point, expressed in US dollars. In the case of direct quotations in relation to the US dollar is not a problem, since the point is already expressed in US dollars. In the case of the inverse of the US dollar value of one point quotations in US dollars should be calculated according to a special formula, which will be discussed later, when we will learn to calculate the profit / loss from the transaction.
In this chapter, all quotes were expressed in the spot (current) prices. We deliberately did not complicate the material chapter introduces the concept of the purchase price, sales price, the value of the spread and cross-rates. It goes about these concepts in the following chapters.
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