Monday, November 2, 2009

3.1 The Forex Lexicon : Currency Pairs

Every FOREX trade involves the simultaneous buying of
one currency and the selling of another currency.
These two currencies are always referred to as the
currency pair in a trade.

The biggest mental hurdle facing newcomers to currencies,
especially traders familiar with other markets, is getting their
head around the idea that each currency trade consists of a
simultaneous purchase and sale.
In the stock market, for instance, if you buy 100 shares of Google,
 you own 100 shares and hope to see the price go up.
When you want to exit that position, you simply sell what
you bought earlier. Easy, right?
But in currencies, the purchase of one currency involves the
simultaneous sale of another currency.

This is the exchange in foreign exchange.
To put it another way, if you’re looking for the dollar to go higher,
 the question is “Higher against what?”

The answer is another currency. In relative terms, if the dollar
goes up against another currency, that other currency also
has gone down against the dollar. To think of it in stock-
market terms, when you buy a stock, you’re selling cash, and
when you sell a stock, you’re buying cash.

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