Tax & Financial Consulting Services
A Crash Course in Trading Currencies
Currencies are traded in pairs because you only really know what one nation's currency is worth if you compare it against another currency.
For example, in the last few years, you would have no idea how much the dollar fell versus the euro, Swiss franc, Canadian dollar etc. unless you compared the various currencies' values against the U.S. dollar.
Once a Pair, Always a Pair
So many years ago, when currencies were first traded, the industry created a trading standard that's still used today. Industry players decided how currency pairs would be quoted. For instance, if you're trading the U.S. dollar vs. the Japanese yen, then that pair is always listed as USD/JPY, not JPY/USD.
Let's take a moment to review the major currencies and their symbols:
USD = U.S. dollar (nicknamed the "buck" or "greenback")
EUR = euro (nicknamed the "anti-dollar")
GBP = Great British pound (nicknamed "cable" or "sterling")
JPY = Japanese yen
CHF = Swiss franc (nicknamed "the Swissie")
CAD = Canadian dollar (nicknamed "the loonie")
AUD = Australian dollar (nicknamed "Aussie")
NZD = New Zealand dollar (nicknamed "Kiwi")
SGD = Singapore dollar
HKD = Hong Kong dollar
As I mentioned before, these currencies are always listed in pairs. Just by looking a certain pair, you can tell if one currency is gaining strength or weakening vs. the second currency listed in the pair.
For example, say you wanted to know how the euro was performing vs. the U.S. dollar. First, you would look at the quote for the EUR/USD currency pair. If you see the price is going up, that means the euro is gaining strength against the greenback. If the price is falling, that means the euro is weakening - and the dollar is growing stronger.
If you look at chart of a particular currency pair, you're seeing how the first currency in the pair is performing vs. the second currency. So for instance, if the EUR/USD chart shows a line moving upward, that means that the euro is gaining strength against the U.S. dollar.
One Goes Down, the Other Must Come Up
So when one currency goes up, another currency must fall against it and vice versa.
Well, I hope this helps demystify trading currency pairs. Once you get used to them, they are as easy to follow as stocks.
I hope you've have a prosperous New Year!
Tax & Financial Consultant, RFC
866-361-3872 toll free fax
"The hardest thing in the world to understand is income tax." Doing Your Taxes doesn't have to be difficult. You could do it yourself but that's like changing your own oil..what else could be wrong with the car? Let us do the job for you-accurately and efficiently to get you all the money you deserve. Visit our website for more information or call us today to set your appointment.