Before starting out in forex trading , traders need to learn the terminology and treat it like learning a new foreign language
When I started my career in forex trading, I was thrust into a NY bank dealing room. I was given six months to learn how to trade in preparation to manage the bank’s dealing room in Singapore..
There was no online trading in those days nor any prepared material to accelerate my learning curve. I had an undergraduate degree in economics and an MBA degree from Columbia University but nothing I studied in school prepared me for this challenge. It was 100% on the job training. I had to start from scratch. It was like learning a new foreign language.
The first step was to learn the trading terminology. It was like learning a foreign language.for those who are just starting out in trading or have jumped in quickly, it pays to learn the language so you will understand what others with more experience (especially the pros) are talking about. . Â Â
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Forex Quoting Conventions
The value of a currency has meaning only when it is expressed in terms of another currency. Thus, the EURUSD rate is the price of one euro in terms of U.S. dollars. The quoting convention is that the first symbol indicated (e.g., EUR) is one unit of the currency being measured in terms of the second currency indicated (e.g., USD).
Example: EUR/USD 1.0935 means one euro is worth $1.0935.
If you wanted to calculate the value of dollars in terms of EUR (USD/EUR), divide 1/1.0935 = .9145 EUR = 1 USD.
The markets do not have a consistent rule for how any currency is quoted, including the USD. Thus, some currencies are quoted in terms of their USD valuations, while other pairs see the USD quoted as its foreign currency value. Which pair uses which convention has been determined by historical precedent.                    ,.’
Selected Currency Pairs
In some currency pairs, the USD value is calculated in terms of one unit of the opposite currency. Thus, as the value rises, the opposite currency gains and the USD weakens; and when the value falls, the USD strengthens
EURUSD = 1.0940
GBPUSD = 1.2980
AUDUSD 0.6334
NZDUSD 0.5810
In other pairs, the opposite currency value is calculated in terms of one USD. Thus as the value rises, the opposite currency weakens and the USD gains; and as the value falls, the USD weakens.
USD/JPY = 148.45
USD/CHF = 0.8819
USD/CAD = 1.436=18
Currency Crosses
There was a time when forex was dollar centric, which meant all trading flows revolved around the dollar. In those days, the dollar generally moved in the same direction but at a different pace vs. all currencies,
This is no longer the case in a geo-centric world. .This makes it important to understand the impact of cross currency flows and how crosses are quoted.
Besides the USD, markets are also made up of non-USD cross currency pairs (e.g., EUR vs JPY, AUD vs NZD, GBP vs CHF, etc.). Quoting rules are the same as for the U.S. dollar pairs. Thus, the EURJPY is the JPY value of one euro.
Example: EURJPY = 162.20 means one EUR is worth 160.20 JPY.
In this relationship, as the value rises the EUR gains against the JPYÂ and as the value falls, the EUR weakens. In other words, as the cross value rises, the base currency is strengthening and vice versa when the cross is falling.
The following is a table displaying both spot and cross currency quotes.
So, as noted, a first step for any trader is to master the language of trading and that starts out by learning forex quoting conventions.
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