What Does It Mean for Traders? – Forex and world
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What Does It Mean for Traders?

When you start to trade forex for the first time, you will notice that you are taking positions on pairs expressed as EUR/USD, or GBP/USD. Fairly obviously, these pairings are read as Euros/US dollars, and pounds sterling/US dollars respectively. When you see a price point of 1.200 EUR/USD, what does this actually mean? The best way to think about it is that it takes 1.200 dollars to buy one euro.
The currency pairing is effectively a ratio of 1:x, with x being the figure quoted as the price. So, if the figure rises to 1.400, it takes 1.400 dollars to buy a euro, in which case the value of your Euros in dollars will have increased. In a nutshell, this is the best way to think about forex transactions and the way in which they are priced. Generally, if you’re going long on a currency pair and the number goes up, you make money, and vice versa on the downside.
But by getting your head around exactly how the currency pairings are structured, you can start to think about likely price movements in the currency pairings you’re considering
. The idea of currency pairings and how they work can seem slightly complicated when explained, but in practice it’s fairly straightforward for most traders to get their heads around. So long as you appreciate the implications of currency pairings and what that means for your required research input and decision-making, it is unlikely that the structure of forex positions will pose many problems as you move into the markets for real. So we’ve established already that forex is the platform through which investors and traders from across the globe buy and sell currency on a daily basis.
A massive market in its own right, the forex markets turn over trillions every single day, with governments, banks and funds being amongst the biggest contributors to market price setting. But what is actually The first and perhaps most crucial thing to understand about forex is that currencies are quoted in and traded as pairs.
So, you don’t strictly just buy dollars or sell sterling – you are instead buying dollars in sterling, or buying Euros in dollars. Without currency pairs, it would be hard to breed in any kind of standard isation for traders and limits the flexibility of the transaction – those that happen to live in the UK would always have to trade currencies in pounds, while those that lived in Spain would always have to trade in Euros.
By creating currency pairs that may or may not involve the local base currency of the trader, the forex markets have essentially levelled the playing field and allowed easier transacting to take hold. Currency pairings also mean that there are more variables and additional factors that must be considered during the research process. Instead of just looking at how the markets will view a particular currency in light of external goings on, the question then becomes how will a particular currency move in relation to another, which makes the calculation a little more complicated.

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