Forex trading is based on buying and selling currency pairs. If you were to buy the currency pair EUR / USD , you would be buying the first (euros) and selling the second (USD). If you sold the same pair, you would be selling the first currency (EUR) and buying the second (USD). As demand grows by buying the pair, the euro strengthens, while the dollar loses strength. On the contrary, if the demand to sell the pair grows, the euro weakens while the dollar strengthens. These movements make, as a consequence, that the exchange rate increases or decreases.
Names and symbols of the currencies
The currencies are denominated using a three-letter abbreviation. The letters indicate which country the currency originates from, as well as the name of the same. For example, USD means “US dollar”; AUD is “Australian dollar”, while CAD is indicative of the “Canadian dollar”. In the forex market, there are some currencies that are subject to high market concentration. These coins are called “large” and are the most negotiated of all currencies. With respect to the currency market, the “big pairs” should not be confused with the “big ones”; Large pairs are those pairs that include the USD and a secondary currency. Couples without USD are not considered large pairs. The first currency in a pair is usually called the base currency.
Long and short
In basic terms, if you perform an operation based on the assumption that the price of the currency pair will increase, you are trading in the long position; on the contrary, if it is operating based on the assumption that the price of the pair will fall, it is operating in the short position. The two ways to earn profits from the currency markets are, then, known as the “long” and “short”. This position is established when the operation begins. If you buy, you are taking the long position; If you are selling, you are taking the short position. An easy way to keep this in mind is to remember that the words sell (sell) and corto (short) start with the same letter. Buying and selling can be confusing in the currency market, because it is easy to confuse one with the other. To keep it always in mind, remember that the “buy” and “sell” position refers to the first currency of the pair; for the EUR / USD, you will buy or sell the euro (and at the same time do the opposite with the dollar, that is, either sell or buy, respectively).
What is leverage?
Leverage in the foreign exchange market means borrowing the initial capital to make an investment.Instead of raising capital, borrowers get it from others instead of using more conventional means to raise the initial amount of the investment. When used in the forex market, it is usually capital loaned by the Best Broker For Scalping Forex. The exchange market is especially good at offering greater leverage from the point of view of preliminary margin requirements; Operators have the ability to build and maintain control of large sums of money. If you want to calculate the leverage based on the margin, simply divide the transaction value by the amount of margin required from you. The leverage can be used by individual investors or corporate investors and can significantly increase the returns available for an investment.
An interest rate is an amount that is charged for the use of money. In the stock market, interest rates can affect the peers operated because when the rate of return is higher, so is the interest accrued on the currency invested. This, in turn, increases the benefit obtained from the investment. This makes this type of exchange operations essentially an exercise in the purchase of currencies with a low interest rate to buy the currencies with the highest rates; Doing this is known as “carry”. When you use the carry strategy, there are risks associated with the fluctuation of the currencies that could offset the gains earned on interest. This happens when the currency that has a higher rate suddenly falls below the rate of the other.