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.

Lesson 1. Forex brokers. Forex Exchange

Back in the early 1970s, the price of currencies of different countries in the world defined by the gold reserves of the country - in a world ruled by the gold standard. Each had its own currency equivalent, expressed in gold. But that all changed on the gold exchange ruling refused, and people introduced floating exchange rates - currency price is now determined solely by its supply and demand. This is how the international foreign exchange market - Forex.

Forex currency of one country is sold for a certain number of units of the currency of another country. I think is hard to see how the money can be sold for money, so you can think of currency as a security that gives you the right to share in the economy of the corresponding country. The health of the economy is always determined by the stability of its currency. Summing up, trading on Forex, we can say particles are trading economies of the world.

Why Forex is unique? Forex can be compared with the market, which can at any moment to buy or sell anything. You have brought to this market goods and immediately found him a buyer for a mutually beneficial price. This - the characteristics of a good high liquidity of the market. Liquidity just means that you can sell or buy a product at any moment on a mutually beneficial price, or exchange goods for money, and the money for the goods. What is necessary for a perfect market? To begin with - fair competition and the absence of a monopoly, and of course a huge number of participants. Just need round the clock. This is - the basic requirements for an ideal market, although you can list a lot more I could write a thesis on this subject. But this is not important, we just need to understand that Forex - the most highly liquid market in the world!

Forex trading has amazing pace - 3 trillion (!) U.S. dollars a day. Everyone can trade forex. To do this, start-up capital and access to the Internet. Given the huge number of participants is unrealistic none of the banks of the advanced countries of the world can not be for some time alone to influence the supply and demand of the proposed exchange. The processes that affect the supply and demand - it's normal processes in the economy of all countries. There is in them an unexpected and regular. You must learn to understand and at the right time to respond to changes in these processes is an important part of knowledge about the trade - known as fundamental analysis.

 Forex does not have a specific location. Forex trading takes place every second. Active trading of certain currencies depends on the time of day, because of the work of the greatest centers of (financial).

  In the Forex market has a number of advantages when compared to other markets, such as with stock. Hour forex makes it the most highly liquid market in the world. Internet has led to the emergence of exchange intermediaries that offer individuals an opportunity to earn on Forex. Thanks to a good competition between them to create a very good environment for forex robots. .

First, we need to understand what is - a private investor in the global currency exchange. If we study all types of participants in the forex market, it will help to understand how the changes in exchange rates in the world. In the picture a simple diagram of the interaction of characters in Forex.


The main participants Forex - commercial banks. These banks make the transaction of purchase, sale of foreign currency, both from themselves and from their customers. Or to place orders directly with other banks or through brokerage firms. They work as follows - dealer department of a commercial bank wants to buy the currency they are interested, get in contact with the brokerage firm and find out what the deal offer other banks. Having come to an agreement they conclude the transaction through a brokerage firm. Thus, the brokerage firm is a central place, and they make their mediation.Some of the major players forex, central banks around the world. The central banks of the developed together sometimes when they want to reach a common goal.

There are at foreke and passive participants, they include investors and investment funds. They use their own funds to purchase securities in various countries.Eats and other passive participants in the forex market, it is the participants of foreign trade operations. These companies are responsible for the import and export of currencies. There are also some international companies are also passively participate in the foreign exchange market, the companies that have branches abroad.

Next we consider the role of the private investor in the forex market. Such investors may not participate in the bidding through a brokerage house. For such investors appeared commission house. Margin Trading, private investors may trade in the tens of times greater than theirs capital, while only risking your money. Nowadays, everyone can try to trade forex with a small bag of pocket. Do not rush to open a real account. Open a demo - account where you will be able to begin to learn from and prepare for the robot for real money.


So what does that such conversion operation? This is a bargain between the parties Forex exchange a certain amount of currency of one country's currency for another country. These operations on Forex vary the value date. Therefore, conversion operations, we can divide into two categories (see figure)

Operations such as the (spot) on the forex market, account for the largest obem.I we will consider the work on Forex is for the transaction. Value date spot transactions (spot) is on the 2nd business day after the transaction is concluded. Thus quality is very convenient for contractors (those who are involved in the transaction) because there will be times during the first and the next day to do all the necessary documentation for the work. This type of settlement (spot) is only suitable for large parties forex. Private investors have the advantage ihni transactions are made instantly, with one click. Therefore, for private investors such term as the value date is not needed and is losing its meaning.

There are also conversive operation called forward, futures, options and swaps. In obscheh all of them can be called - derivative - financial instruments (derivatives). All of these tools have been developed for business, thanks to the fact that they reduce the risk of changes in quotes in the forex market. They have little value to a private investor who wants to make money on forex, but we still consider them to understand the full picture of forex trading.

And so it is for contracts (forwards) and who concludes from? It's very simple. If you simply put, that are concluded between parties who have agreed to exchange certain amount of currency (agreed in advance). After the exchange of the contract will be accomplished in spite of changes in the prices in the currency market. Contractors can come to any agreement on these points: the amount of the transaction, quotes, and of course the date "valyutirovaiya".On the one hand forwards contracts may reduce the percentage of risk, but also because it is possible to miss a profit.

Operations such as (futures), forwards differ from those that have standardized maturities and fixed size and the amount of currency. This gives them the opportunity to be Bartered as a valuable paper. Operations (futures) have their own store called (futures market).

Operations (options) are very similar transactions (futures), only one of the parties to the transaction have weakened commitment. In the (futures) you have to bring the deal to the end, and in the (options) you can reject it. Operations (options) have their own market called (options market).

There is also a type of operations as (swaps) - in this part of the operation as well as in the rest of bargain purchase / sale, but this time they undertake to enter into a reverse transaction after a certain period of time. Swaps have its own market as they are not standardized.If you are self-employed, the highest priority should be given to you as the transactions (spot) on the spot market (spot market). And that is what we are going to do in our next lessons.