How to Value Currency Pairs | ForexGen Tips

Monday, September 22, 2008

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Typically, in the FOREX market, currencies are traded in pairs. For example, Euro/US Dollar or US Dollar/Japanese Yen. Whenever you trade currencies online, you are then, buying one currency and selling another. Currency pairs are abbreviated. The above pairs would be EUR/USD and USD/JPY. The currency on the left is called the base currency, and the one on the right is the cross currency.

The value of a currency pair is determined by the strength or weakness of the base currency in relation to the cross currency. The base currency value is always 1. That means when you see a quote of 1.4652 for the EUR/USD, its value means 1 Euro will buy 1.4652 dollars. The next day you may see a quote for the EUR/USD of 1.4725. If you listen to the financial news you will hear them say something along the lines of, “the Euro gained strength against the Dollar today”, or “the Dollar fell today against the Euro”. In pocketbook english, that simply means it takes more dollars today to buy 1 Euro than yesterday.

Let’’s say you have an online FOREX account and bought the EUR/USD yesterday at the above price of 1.4652 and today you sold, or closed out your trade at 1.4725. That would leave a profit of 73 pips. What the heck is a pip you might ask. Well a pip has two definitions but they both mean the same thing, dollar wise at least: Price Interest Point and Percentage In Point. I have never been able to get a clear difference in the definitions no matter who I have asked, and don”t really worry about it anymore because, like I said, they mean the same thing dollar wise.

When you trade currencies online you will have to open an account with a forex dealer. You can open either a standard account or a mini account. In the standard account a pip is worth approximately $10 dollars, and in the mini account it is worth approximately $1 dollar. It used to be the pip was the smallest unit of value in the FOREX market. Today however, many forex dealers quote in tenths of a pip. They have carried out the quote one extra decimal number to give better and more accurate spreads. So the above quote might have read 1.47253, where the 3 is the tenth of a pip. So its value would be either $3 dollars or $.30 cents depending on the type of account you have.

You may have noticed that I said pip values are approximately $1 dollar. That’’s because each currency pair has its own pip value. The true value is determined by mathematical formulas and the exchange rate of the currency pair. Some pip values are fixed and others fluctuate slightly as one currency rises or falls in value relative to the other currency in the pair.

Currency trades are made in fixed dollar amounts called lots. One lot in a standard account is equal to $1000, which controls $100,000. One lot in the mini account is equal to $100, and controls $10,000. Both standard and mini accounts typically have a 1% margin which allows the FOREX trader 100 to 1 leverage on their investment dollars.

If you trade currencies online, the ultimate goal is to capture as many pips as you can, and not get bogged down in the details of what the exact value of each currency pair is. Unless you are interested in becoming an economist or some such thing, the information presented here is more than enough to let you get on with putting as many pips in your account as possible.

How Does Forex Currency Trading Work? | ForexGen Tips

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Foreign exchange trading, or often referred to as Forex (FX) currency trading, is simply the trading of foreign currencies in a forex market. This form of trading was initiated by the event of the Breton Woods Agreement in 1944. This agreement was an effort to keep cash from draining out of the war-ravaged Europe. The U.S. Dollar served as the basis for currency values, which was pegged to the price of gold.

When this agreement had collapsed, the modern era of foreign exchange then emerged in 1971. By then the U.S Dollar was no longer convertible to gold, signaling an increase in currency market volatility and trading opportunities, however, during the collapse of the Smithsonian and European Joint Float agreements in 1973, the true free-floating currency exchange began to transpire. With the aid of the computer technology, the reach of the exchange marketplace was extended. Values of major word currencies today have become independent of each other.

There are four known currency pairs that dominate the percentage of trades. This are identified when buying and selling in the forex currency trading system market. These four currency pairs are the Euro vs. U.S. Dollar, the U.S. Dollar vs. the Japanese Yen, the U.S. Dollar vs. Swiss Franc, and the U.S. Dollar vs. the British Pound.

When investing in currency, the primary goal is to hold a currency that appreciates in value relevant to the other currencies. Here is a simplistic example. If 50 British Pounds were bought for 100 U.S. Dollars, then held the Pounds for one week, considering that in that period the value of Pounds increased in relation to U.S. Dollars, those Pounds could then be converted back into $120 for example.

The forex currency trading is open for trades the whole 24 hours in a day. Compared to the domestic stock markets, the foreign currency trading is always in business since every country from different regions of the globe trade on the FX market. In addition, the other important distinction of the forex currency trading from the domestic stock exchange is that it does not rely on a central body or organization such as the NYSE or NASDAQ to act as middleman. Usually, the trading flows between major banking centers around the world.

Previously, currency trading had very high barriers to entry, giving only large banking and institutional firms the access to the tools and systems required to participate in the forex trading. With the advent of the internet, there came the FX brokers. These forex brokers may be thought of as something similar to an online stock trading account such as etrade. This enables anybody to play the forex trading game by opening an account and buy and sell in quantity. The large minimum transaction size can be met by brokers as these are composed of thousands of investors placing orders through tem.

It may seem easy to start trading forex, however, it is undeniably a complicated and complex market. As it offers a tremendous opportunity for wealth, it is also very easy to lose a whole lot. It is best to first to do research, understand and analyze as much on this matter before investing your hard earned money.

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Forex is an abbreviated name for foreign exchange. The Forex trading market is an around-the-clock cash market where the currencies of nations are bought and sold, typically via brokers. For example, you buy Euros, paying with U.S. Dollars, or you sell Canadian Dollars for Japanese Yen. Forex trading market conditions can change at any moment in response to real-time events, such as political unrest or the rate of inflation. The purpose of this article is to give you an introduction to Forex trading.

Here are some of the unique features of Forex trading that attract private investors just like you:

Accessibility: The Forex trading market is open 24 hours a day, 6 days a week. You have non-stop online access to global Forex dealers through your home computer. This enables you to log in to your account and trade anytime, from anywhere.

Low margin requirements: Margin is referred to as the collateral needed to facilitate a deal. In Forex trading, this is usually a very small portion of the entire deal, say 1% or 1:100. For example, if your margin is $100 (1% of the entire Forex deal in this case), you could control $10,000 of currency contracts. However, margin is a double-edged sword. Without the proper use of risk management tools (that is, stop-loss and take-profit orders), you can experience substantial losses as well as gains.

Risk management tools: Essential for any successful Forex trading system, these tools include stop-loss and take-profit orders. A stop-loss order is a market order to close a Forex position if or when losses reach a pre-determined threshold. A take-profit order is a market order to close a Forex position if or when profits reach a pre-determined threshold.

Zero commission trading: Unlike equities or futures trading, you pay no commissions on the Forex deals that you make.

Liquidity: Forex is the most liquid market in the world, thus making it easy to trade most currencies.

Here are some more facts about Forex trading:

According to The Wall Street Journal Europe, the most actively traded currencies on the Forex trading market are the U.S. Dollar (USD), the Japanese Yen (JPY), the Euro (EUR), the British Pound (GPB), the Swiss Franc (CHF), the Canadian Dollar (CAD), and the Australian Dollar (AUD).

The most heavily traded currency pairs are the U.S. Dollar and the Japanese Yen (USD/JPY), the Euro and the U.S. Dollar (EUR/USD), the U.S. Dollar and the Swiss Franc (USD/CHF), and the British Pound and the U.S. Dollar (GBP/USD).

Ten financial institutions account for nearly 73% of the total Forex trading market volume. The Top 10 most active traders include Deutsche Bank (17.0%), UBS (12.5%), Citigroup (7.5%), HSBC (6.4%), Barclays (5.9%), Merrill Lynch (5.7%), J. P. Morgan Chase (5.3%), Goldman Sachs (4.4%), ABN AMRO (4.2%), and Morgan Stanley (3.9%).

The five major Forex trading centers are London, New York, Tokyo, Sydney, and Frankfurt. The three major Forex trading countries are the United Kingdom (32.4%), the United States (18.2%), and Japan (7.6%).

Forex traders generally plan their trading strategies around two types of Forex analysis: fundamental and technical.

A fundamental analysis uses economic and political factors, such as unemployment rates, interest rates, or inflation, as a means of predicting currency movements. Fundamental analysis is concerned with the reasons or causes for currency movements.

A technical analysis uses historical data as a means of predicting currency movements. The technical analyst believes that history repeats itself over and over again. Technical analysis is not concerned with the reasons for currency movements (for example, interest rates or inflation). Instead, it believes that historical currency movements are a clear indication of future ones.

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This applies to any type of business under the sun, especially to property and currency. Staying on the side of value, which is what bookmakers do, ensures that in the long run you are a winner.

There are several tips how to stay on the side of value:

1. Doubling your stakes is madness. Remember if you flip a coin a thousand times and it comes up tails, the odds are still even money that it will come up tails the next time you flip it!

Conclusion: Investing lots of good money just to get back what you are losing plus a little profit, is making the risk is too high and the return too low. You are not on the side of value. Keep away from deals like that, but if involved, cut your losses and stop as soon as you can. It is far better to wait for value when trying to recoup.

To keep on buying falling foreign currency in the belief that it is bound to go up any minute, is a similar kind of example. More chance to recoup will come, when the sentiment is showing signs to support the currency you bought. Value will be knocking on the door.

When it comes to housing, value comes into play again, whether if you are selling or buying. If selling, value is found in investing a little to make the house look that much better. Whatever amount you invest to make the house nicer, it will return back twice as much, and surely help to sell the property quicker. Many sellers think that it is silly to make improvements to a house they no longer want. Yes, but they have to sell it first. If you are buying, the value is better when the prices are down rather than up. Not many lose in the long run on houses bought at sensible prices.

2. When the risk is big and the gain is big, there is no point in getting involved.

3. When the risk is small and the gain is big, in the long run you profit.

4. When there is no risk and the gain is big, beware, unless you are a burglar.

You would think that all you have to do is to follow rule 3 to succeed. Maybe so, but it requires one more thing which is, to have the rare ability to convince yourself to wait for value. Very few people have that, hence they lose money.

If you cannot find value by yourself go to experts who can.

I used to know a fellow, who thought himself a dab hand at being able to always foretell foreign currency exchange trends, but otherwise, he was quite normal. Last time I heard, he married a rich old widow just in time to avoid financial problems. I hope he got value.

ForexGen Customer Services | Forex Market

Thursday, September 11, 2008

With ForexGen Customer Service The trade-weighted exchange rates constructed for the aggregate U.S. economy do not always capture the changes in industry competitive conditions induced by ForexGen News Center movements in specific bilateral exchange rates.

Download ForexGen Platform so that Exchange rates produced using information on industry-specific trade partners are often better suited for this task.

ForexGen Enterprise Accounts This article constructs three industry-specific real exchange rate measures for the United States-one using export partner weights only, a second using import partner weights, and a third using an average of export and import weights by industry-and examines how they co-move or diverge from the aggregate economy wide measures.

The exercise suggests that researchers who use aggregate exchange rate indexes rather than industry-specific measures might overlook the empirical value of exchange rates for the producer profits of specific U.S. industries. So that you will know Why ForexGen?

Oil at $130 Pushing US Dollar and Stocks Higher

Thursday, July 17, 2008

Oil at $130 Pushing US Dollar and Stocks Higher
Oil prices have continued to fall, helping to lift the US dollar and stocks. The reversed roles of oil and stocks, with the former falling and the latter rising comes as a big relief to traders around the world who may have feared for the worst – crude prices hitting $150 a barrel and the Dow falling below 10,500. Lower oil prices act as a free tax cut for consumers and businesses who are currently crumbling under the weight of rising food and energy prices. The answer to many of the Fed’s problems would be oil at $100 a barrel. Since Monday, oil prices have fallen close to $18 or more than 12 percent, which is in line with the degree of prior corrections that we have seen in the commodity. This has made investors cautiously hopeful that the stock market has bottomed and oil prices have topped. Whether or not this is true remains to be seen. For the sake of the global economy, we hope that oil prices continue to ease, but we have seen similar recoveries over the past 2 years (oil charts) be nothing more than a hiccup. As for the US dollar, it has strengthened significantly against the Japanese Yen and recovered impressively against the Euro and British pound. Since the beginning of 2007, there has been a strong correlation between USD/JPY and the S&P500 Index, which explains why the currency pair has rallied more than 200 pips. A strong dollar not only helps to lower oil prices but it also increases investor confidence. The Financial Times reported that the weakness of the dollar and the problems in the US capital markets are encouraging Sovereign Wealth funds to look at diversifying out of dollar denominated assets. Economic data from the US was mixed. Housing starts, building permits and jobless claims were all better than expected but the Philadelphia Fed index failed to rebound. The improved housing market numbers are somewhat distorted by a change in the NYC building code which has triggered a sharp rise in multi-family starts in the Northeast. Claims on the other hand are unambiguously positive. There will no US data due for release tomorrow which means that oil and equities will continue to drive the price action of the US dollar. read more...
EUR/USD: Bulls and Bears Locked in a Tight Battle
EUR/USD bulls and bears are locked in a tight battle as hawkish comments from ECB officials prevent the currency pair from succumbing to the recovery in the US dollar. ECB President Trichet said that even though the markets are still suffering from very severe turbulence, the central bank cannot afford to second round effects to get out of hand. More specifically he said that the central bank is determined to bring inflation from 4 percent back down to 2 percent. They are keeping a particularly close eye on the rise in unit labor costs and reminding household and businesses that they are guaranteeing price stability in the medium term. ECB Wellink went one step further in his comments this morning. He said that “if you don’t stop inflation before it rises further, it will take 10 years to get it under control.” German producer prices and the Eurozone Trade Balance are due for release tomorrow and we expect the data to be Euro bullish.
Visit the Euro Currency Room for resources dedicated specifically to the Euro.
British Pound: Struggling to Hold Onto Gains
The British pound is struggling to hold onto its gains against the US dollar. There was no UK economic data released today, but Bank of England Economist Dale warned that there are opposing risks to inflation. Even though CPI is higher, he believed that slower growth would ease inflation in the coming months. Sterling traders should now realize that the Bank of England does not have much choice when comes to inflation which is why they are banking on the hope that slower growth will drive down price pressures. Earlier this week, UK labor market data was released and according to the report, unemployment rose by the largest amount in 16 years. Don’t forget that service, manufacturing and construction sector PMI all contracted in same month, which reflects the vulnerability of the UK economy. Public sector finances, net borrowing and money supply data are due for release tomorrow – these are Tier 2 economic data which means that they will not be particularly market moving.
Visit the British Pound Currency Room for resources dedicated specifically to the British Pound.
Australian, New Zealand and Canadian Dollars Continue to Fall
The Australian, New Zealand and Canadian dollars continued to fall as the US dollar rises and commodity prices decline. The biggest loser was the New Zealand dollar which dropped 1.32 percent against the US dollar. This is expected given the overall weakness of the New Zealand economy. The only reason why the Kiwi has been appreciating over the past few days is US dollar weakness. Meanwhile the Bank of Canada released their monetary policy report. According to BoC Governor Dodge, inflation is expected to exceed the central bank’s target but interest rates are appropriate. His statement and bias is clearly neutral which means that for the time being, the central bank does not plan on altering interest rates. Foreign purchases of Canadian securities surged in May as investments in Canadian bonds increased by the largest amount in 12 months. On the calendar are the leading indicators and wholesale sales reports from Canada tomorrow and the import and export price indices from Australia this evening.
Tell us what you think on the Canadian dollar Forum.
Japanese Yen Crosses Continue to Recover
The recovery in US equities has led to a continual recovery in the Japanese Yen crosses. Even though leading indicators improved marginally in the month of May, Japan is still deep in the woods. China reported slower than expected GDP growth which means that their demand for Japanese goods could start falling. This is a problem that could exacerbate following the August Olympics. Department store sales are due for release tomorrow. The recent drop in consumer confidence suggests that spending will be weak.
Visit the Japanese Yen Currency Room for resources dedicated specifically to the Yen.read more...

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EUR/USD: Bulls and Bears Locked in a Tight Battle

EUR/USD bulls and bears are locked in a tight battle as hawkish comments from ECB officials prevent the currency pair from succumbing to the recovery in the US dollar.
ECB President Trichet said that even though the markets are still suffering from very severe turbulence, the central bank cannot afford to second round effects to get out of hand. More specifically he said that the central bank is determined to bring inflation from 4 percent back down to 2 percent. They are keeping a particularly close eye on the rise in unit labor costs and reminding household and businesses that they are guaranteeing price stability in the medium term. ECB Wellink went one step further in his comments this morning. He said that “if you don’t stop inflation before it rises further, it will take 10 years to get it under control.” German producer prices and the Eurozone Trade Balance are due for release tomorrow and we expect the data to be Euro bullish.read more....