Market instruments. Basic concepts.
Currency pairs are traded at FOREX. Currency pair consists of the base currency and the quoted currency. Quote of the currency pair shows how many units of the quoted currency yield for one unit of the base.
For example, if the quote of EURUSD is 1.4500 , 1 euro costs 1.45 dollar.
There are 3 types of currency pairs - straight, reverse and cross-rates.
Straight pairs are characterized by the fact that the dollar appears to have the quoted currency (comes second in the pair). In the reverse pairs the U.S. dollar is the basic currency. In determining the cross-rates the dollar is not involved. Nevertheless, for the ratio of exchange in the crosses using direct and inverse dollar-based currency pairs.
Lot - a standardized trading volume. The standard size of a lot is 100 000 units of base currency. Accordingly, the number of units of the quote currency is determined on the basis of current market quotations for the currency pair.
For example, if the quote for a pair Euro vs. US dollar is 1.45, this means, that in 1 standard lot contains 100,000 euros or 145,000 dollars. At the same time one lot will always contain a 100 000 euros, while the number of dollars will change depending on the current quote.
FxCompany clients can trade fractional lots. For example, you can execute transactions for 0.1 lot.
The size of trading volume is important to determine the potential profit or loss in market movements. Forex price movement is measured in points. Point (pips) - this is a standard step of changing prices.
For example, the current quotation for Eurodollar is 1.4500. If the price of the euro against the dollar will rise by 5 points, it means that the number of dollars per 1 lot on this pair will also change. However, note that the amount of the lot in the base currency, in our case, the euro will remain unchanged.
Accordingly, the growth of quotations on 5 points, also increased price of 1 lot at $ 50. Consequently, the price of 1 point per 1 lot is $10.
The same logic applies to the inverse pairs and crosses, but with minor changes
Consider the opposite a pair USDCHF with a current quote 1.25. In one lot of this pair contained $ 100 000 and 125 000 francs. With the growth of the dollar against the franc by 3 points, the lot size is also increased by 30 francs. If we deposit a dollar, we are 3 points, expressed in francs, translated into dollars. After conversion into dollars, we got that 1 point is equal to 0.8 U.S. dollar. As you can see, the cost of the item in this case depends on the current odds, whereas in the direct vapor it is constant.
Finally, let us return once more to the market price of currency pairs. For a speculator in the market, there are 2 prices - bid and ask. Ask is the price for buying, and bid is the price to sell. If we buy and then sell a currency, we get a loss in the amount of spread. Spread - this is the primary fees paid by the trader. When selecting commercial tools should analyze how quickly the market movement in the right direction for you to be blocked by the loss on the spread. If the currency is volatile, that is with a rapidly changing quotations, even greater than the classical pair Eurodollar, the value spread, trade on it can be advantageous.
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