Trading currency pairs

About the market

Currency market (The foreign exchange market, Forex, or FX) is a global decentralized or over-the-counter (Benchmark) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world.
Currency Pairs

When trading the Currency market, we are actually speculating on the relative values of two paired currencies – each currency pair delineated in a 6-letter form that joins the respective 3-letter designations of the two traded currencies (EUR-USD, for example). One – the base currency (here, the Euro) – is that which lends the pair its basic unit, the other (the US Dollar in the example above) – the counter currency – is that which lends the pair its value. Accordingly, the value of the currency pair describes the number of counter-currency units required for the exchange of a single unit of base currency. If the value of the EURUSD is quoted as 1.1031, then 1 EUR equals 1.1031 USD. The top eight currencies in which the world’s trade is executed are the US Dollar (USD), the Euro (EUR), the Japanese Yen (JPY), the British Pound (GBP), the Canadian Dollar (CAD), the Australian Dollar (AUD) and the New Zealand Dollar (NZD). The Chinese Yuan is not mentioned here since it does not have a floating exchange rate, but rather one that is pegged to the USD and manipulated by the government. The major currency pairs are comprised of one of the above-mentioned seven (apart from the USD) paired against the US Dollar (the latter as the base currency in 3 pairs and the counter-currency in 4). Since these represent the most often traded pairs, usually their liquidity is highest and their spread (trading cost) the lowest.

The foreign exchange market is unique because of the following characteristics:
• its huge trading volume, representing the largest asset class in the world leading to high liquidity;
• its geographical dispersion;
• its continuous operation: 24 hours a day except for weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
• the variety of factors that affect exchange rates;
• the low margins of relative profit compared with other markets of fixed income;
• the use of leverage to enhance profit and loss margins and with respect to account size.

How Currency pairs (FX) trading works?

As mentioned, trading Forex involves speculating on the price evolution of currency pairs – instruments that track the relative value between any two national currencies. The value of each currency is a function of demand and supply, with the latter regulated by a nation’s central bank through printing and circulation, on the one hand. The central bank also determines the interest rates at which commercial banks can deposit or loan funds with/from the central bank. Both of these are amongst the central bank’s two primary tools for administering a nation’s monetary policy. A central bank can also influence circuitously a country’s economy: for example, by lowering interest rates, companies can access “cheap” money to develop their activities and provide more jobs. On the other hand, by printing money, they also generate inflation, devaluating the currency and decreasing the individual’s retail facilities, thus depressing the economy. Consequently, a Forex trader would do well to be conversant with current affairs and the economic (as well as political) news. To be able to succesfully trade with currency pairs Trader must have enough education how currency pair works , The trader must know the economic and political situation of the country in whose currency he trades. Also he/she must monitor all big companies news and contracts, as well as the economic situation of the country voiced by the relevant state agency. Such as per capita GDP, employment index, country's domestic interest rate index and so on. Successful traders often use information provided by a large analytics companies, in which they pay a certain amount of interest. Trade Station helps its partners to achieve success by providing high quality analytical information which depends on the registration package and the partner's trading assets. Trader Station’s analysts are distinguished by many years of experience. And help new traders succeed in a short period of time. Additionally, markets are subject to market cycles and individual behavioural cycles, which enables us to also examine them based on past behaviour. Because markets are made up of individuals, those same instincts, fears and greed that are palpable in individual people, dictate market behaviour, as well. This gives rise to technical schools of analysis that ignore the above-mentioned fundamentals in lieu of the results thereof. Either way, to understand how trading forex works, it is not enough to open and fund an account, then blindly push buy or sell buttons. To succeed, one must understand what is moving the markets and be able to apply the knowledge to the behaviour.