Lesson 2. Exchange rates on forex

When you goes to the store to buy the item and see the price tag, we do not have questions for the cost of the goods, as it is measured in currency which we understand. But the international foreign exchange market, you do not shop. There is not enough of a price tag because one currency is traded relative to the other constantly. And if we trade currencies such as Ukraine and Russia we need to know the price of one "hryvnia" expressed in the value of the ruble, or vice versa. In other words, we must know the exchange rate of one currency against another. The exchange rate is displayed special quotation, in this case Rs. / Rub. (this example)

These two currencies (on the right and on the left) have their names.Ta which is on the left side of the sign "/" base currency, and the one that is on the right side of the sign "/" quoted currency (quoted currency). Quotation of the forex for all pairs of strictly defined. For example, the euro and the U.S. dollar look, only the EUR / USD and not otherwise.

We need to know what determines the position of quotes, let's take a break from forex and consider a country like Japan. Anyone can tell how much easier to say that one dollar can buy or sell for 104,781 Japanese Yen, rather than vice versa, one Japanese 0.00951 per dollar. Because this currency quotation is presented only as USD / JPY, but not vice versa. Direct quotation - a way of writing the exchange rate at which the cost per unit of the other (foreign) currency is expressed in a certain amount of national currency.

Fores has no national currency, the U.S. dollar is the international reserve currency, the U.S. dollar quotes are writing the rules of exchange rates, which have developed in some countries. And that applies to the U.S. concept of direct and indirect quote. Where the dollar is the base currency, the quotation will be back. Quote currency U.S. dollar will be the only certain pairs of currencies and therefore is a direct quote. You can write a formula, the number before the "/" and the number after that is the sign of X, this formula means that we can buy or sell the currency before the "/". Then you can see the types (examples) quotes the dollar

USD/JPY
98.50

EUR/USD
1.3846


USD/CHF
1.2111

USD/CAD
1.1998


Looking at this table, we can immediately understand that one euro is worth 1.3846 U.S. dollars, and so on. It is important to learn the quotes that you use in forex, because sometimes the Internet are changing the conventional view of quotations, for example sometimes quotation against the dollar write only one currency. It is necessary to know the whole quote currency in the pair and without. So if you do not want to take the wrong decision at the international Forex market, start teaching quotes.

But the knowledge of quotations is only the first step, we still have much to learn, we continue to analyze the theme of change direction in prices. Our task in the forex buy as cheaply as possible and sell the most expensive. Rate changes have opposite values​​. On the chart you can see the example of a change in prices.

If you see the chart above that the accuracy of the different uses for different quotes and their meaning (different number to the left of the graph). Most small value quotes is called point, pip Holdness point, pip exists because for different quotes they are different. Big numbers (big figure) vary quite rare for this to take a long time.

In this lesson, all quotes were expressed in spot prices. In the next lesson we will focus on the purchase price and sales. I suggest you dear reader of your parallel study here on my blog, open a demo - account (this you will save time), and try to practice all that we teach.


 Buy, sell, spread


I intentionally wrote all articles up to this time only spot exchange rates (when considering the prices). But in forex quotes consist of two courses (two prices) - buying and selling. They can be identified by the icon in between, the last lesson we have dismantled it, it looks like this - "/" the purchase price up to the mark, the sales value after.


Buying rate - the cost (price) for which the people who put quotation and meaning in it, you are ready to buy a particular currency. Well, at the selling rate means the same thing only this time did not buy from you, but on the contrary - you sell a currency, for a price. Do not forget what you get buying and selling of produce you do not, and those who put quotation (roughly speaking). If for example you want to buy the currency you look at how much you can buy it and if the price is right for you, buy, sell, or vice versa. But still, you do not dictate the rules, the rules dictate to you!



Graphical view of the quotations can be different, depending on the type of trading platform in the first place. Below you can see an example of trading platforms in the international forex market.

In the forex market, the older numbers are often not visible because they are very rarely change, so the quotes are often displayed the last 2 digits.

And the difference between the value of the course before and after the icon is called the English word - spread. In this and make the people who put up quotes.



Now we see an example of the exchange of currencies. Let's look at an example to the popular forex quote - USD / JPY 105.86/85 (U.S. Dollar / Japanese ene), albeit spread is 12 points. When selling the $ 100 you get a 100 x 105.86 = 10,586 Japanese ene. Now, when someone buys these one hundred dollars, he will have to pay 100 x 104.85 = 10,485 Japanese Yen. Thus, exchange earn 10,596 - 10,586 = 10 ene. Here, on a practical example we looked at how each transaction gets a percentage of the exchange point (when buying and selling currencies on the international market). This is the foundation of a brokerage house, "making money."



Little things like 10 en brokerage houses are not satisfied, on the spread which is used exchangers are much larger, and the minimum transaction amount $ 100,000.

We have yet to learn how to calculate profit from the deal (and have to calculate profits it in the desired currency). The main thing you have to remember is that there are courses of purchase and sale, and the difference is expressed in points between them is called - spread. And it was he motivated by brokerage houses to attract private investors. Earning a certain percentage of operations on theirs. Therefore, the smaller the spread, the better it is for the private investor. These issues will be addressed in the next lessons.



So it's time to find out who are the people who set currency rates, and if so to speak, "they rule" in the international forex market. These are major participants in the forex like (I wrote a bit about them in previous lessons), and a group of passive participants, and of course hundreds of thousands of other participants but which are slightly affected by changes in exchange rates. How so? Let's return to practice, if a large number of people start to sell one currency which is the price for it will start to fall. Our task is to learn to react to such changes. We'll talk more about this in the next lessons.



Spread does not happen all the same. It depends on the party's forex. Spread a few points can be only large players millionaires, but even small spread in large enclosures can bring big profits. The little participants in the forex market spread more.



Market liquidity directly affects the size of the spread. As a rule, the unpopularity as some quotes, its spread is increased. But we still need to focus on highly liquid currencies.





So by reading this lesson I think you already have understood that the sale, purchase, spread - a substantial and honorable international forex market. The information in this article is very important if a person wants to try their opportunities on forex knows that, for him there is nothing to do. So well remember today's lesson, and if you open a demo - account, then go ahead and try everything in practice. And we still have a lot to learn for successful forex trading. We do not say goodbye, we'll meet in the next lessons.