FOREX: Amount of Value
The decline in currency values and the potential return of the gold standard abolished in the 1970s really became a hot topic. The experts propose a balanced gold-based monetary system, regardless of some of the weaknesses of the system. One of the most striking disadvantages is that there is no such foreign exchange market. In fact, it is the gold standard that encourages Forex.
FEEL THE DIFFERENCES
Forex is a short-term trading market, where a trader aims to gain profit from price fluctuations. The maximum duration of trading in Forex is a few months, while in the stock market can take a maximum of 5-7 years.
The foreign exchange market is centralized. Various banks are trading in this market using a variety of different software. Most individual traders can not enter the interbank Forex market, as trading volume standards in this market vary 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 quotation looks as follows: 1.2836. The standard change in quotes is 1 tick in the fourth digit.
The quotation of 1.2836 means that a trader must pay $ 128,360 to buy 100,000 euros. If there is a tick change in the price, the client must pay $ 128,370, which is 10 dollars more.
Thanks to modern technology, there is a more accurate quote consisting of five digits after the point, which lowers the risk of error when entering the market. InstaForex clients enjoy the opportunity to work with quotes four digits and five digits.
DIRECT AND INDIRECT TIME. CROSS RATES
The value of the foreign currency is quoted in US dollars. However, some trading terminals include the value of direct and indirect currencies and even cross rates. Direct quotation is the exchange rate of a foreign currency that is annotated as the domestic currency per one US dollar. They have the symbol of trading foreign currency as a numerator and the US dollar symbol as a denominator.
The EUR / USD pair rate is denoted as 1 euro on a US dollar scale. This shows the amount of US dollars needed to buy one euro. This is a direct quotation. 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, the trader buys the foreign currency and sells 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 a symbol of the US dollar and its denominator is a symbol of other foreign currencies. For example, USD / CAD is the quote of the US dollar in Canadian dollars showing the number 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, the trader buys US dollars and sells the foreign currency. Conversely, when selling, it sells US dollars and buys foreign currency.
Cross rates are quotations of one foreign currency in other foreign currency scale. Since all foreign currencies are quoted in US dollars, cross rates indicate quotations of foreign currency through the prism of the US dollar exchange rate. The most popular cross currency pair denominated Japanese yen and Swiss franc: EUR / JPY (quote of euro denominated Japanese yen), GBP / JPY (quote of British pound denominated Japanese yen), CHF / JPY (quote Swiss franc yen Japanese) GBP / CHF (British pound quoted in Swiss francs), and EUR / CHF (quote of euro denominated Swiss franc).
In 2011, the Swiss National Bank limited the value of the franc at 1.20 CHF per euro. As a result the franc market drops, which is indicated in 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 CURRENCY, COMMODITIES, AND US DOLLAR INDEX
Major 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.
Canadian Dollar (CAD) and Australian (AUD) are strong currencies, but the currency circulation is limited. These two currencies are called commodity currencies because their value depends on the movement of raw material prices. New Zealand Dollars are 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 Polish zloty (PLN) are rated as stable currencies, but they are only circulating at the regional level.
Chinese Yuan (CNY) whose exchange rate is set by the People’s Bank of China is not a freely exchangeable currency.
The US Dollar Index shows the greenback’s exchange rate against a basket of foreign currencies. There are several types of USD indexes that are calculated using various formulas. The classic US Dollar Index shows the price percentage of the greenback against six major currencies such as the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. The US dollar price in 1973 was given a 100% percentage.
Forex is a market that prioritizes small quote changes. The weekly fluctuations stay within 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.
The standard leverage in Forex is 1: 100 which allows traders to open buy or sell positions with volumes up to $ 100,000. Is this a large or small amount? The EUR / USD currency pairing 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 the risk, you can lower your leverage or the volume of positions you open.