Thursday, April 30, 2009

Forex Currency Pairs and Spread

As many people know, there are foreign exchange currency pairs, the most popular ones are: EUR/USD, GBP/USD, USD/JPY, USD/CHF, EUR/JPY, USD/CHF, EUR/GBP. EUR=Euro, USD=US Dollar, GBP=Great Britain Poundsterling, JPY=Japan Yen, CHF=Swiss Franc. Volatility of each forex pairs are different, some pairs are more volatile than others. Forex pairs that are more volatile than others are better to use in trades, because traders make profit from the up and down movement of the currencies.

Normally, forex traders trade currencies of the major role players in the world economy because that players (countries) affect global economy. Other reason is the spread of forex pairs of major role players is much lower than less popular pairs. What is spread? spread is the difference between asking and bid price, that's why when you involve in forex trading there will be difference between currency actual rate and what you pay for getting it. That's the way forex broker get their profit. For example actual currency rate of 1 EUR is 1.275 USD, and the spread of EUR/USD is 2 pips, then you can buy 1 EUR for 1.277 USD. So, you must win 2 pips before you get break even :). If you choose less popular pairs then you must win lot more pips before you get break even, for example the spread of EUR/ZAR is 270 pips, then you must win 270 pips before you get break even, it's difficult aye :).

2 comments:

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