CURRENCY PAIRS                                                  Click Here to read in Vietnamese

Base Currency & Cost to Trade (Deal Spread)

Generally, there're 8 types of currencies are being traded in the market today, based on their large volume transferred per day; They are: US Dollar (USD); Euro (EUR); Japanese Yen (JPY); Great British Pound (GBP); Swiss Franc (CHF); New Zealand Dollar (NZD); Australian Dollar (AUD) and Canadian Dollar (CAD). To trade, one must have selected 2 out of the 8 currencies above, this set of 2 is 'currency pair'. It is important to remember each currency pair has its own unique in qualities and characteristics.

Let's exam the following pair, in a trading section, some charts indicated as EUR/USD 1.265 means to buy $1.000 Euro costs $1.265 USD and to sell $1.000 USD, one would receive $0.790 Euro.

However, when you're an active trader, you'll have access to trading board which allowed you to bid/offer or sell/buy each pair. These boards are set up in the way that you can see clearly the price moved at 1-minute interval and up to months for you to analyze prior to enter a trade based on those price movements. Some boards indicated as EUR/USD 1.2650/53 means to sell $1.000 Euro, it costs $1.2650 USD and to buy $1.000 Euro costs $1.2653 USD. Remember, the 1.2650 is the bid or selling price and 1.2653 is the offer (aka 'ask') or buying price. In this EUR/USD pair, the change in value of USD always equal to $1 Euro, therefore the Euro is the 'base currency'. For cost to trade this pair is the fourth digit after the point of the quote, this cost must be paid in advance by you to the market makers to get into a position. For the above trade, the cost is only 3 pips (the different between buying and selling price.)

Let's look at another pair, say, the market price for USD/JPY $118.25/29 means to sell $1.00 USD, it costs $118.25 Jen and to buy $1.00 USD, it costs $118.29 Jen. The 118.25 is the bid or selling price and 118.29 is the offer or the buying price. Again, because the change in value of Jen always equal $1 USD, therefore, in this pair, the USD is the 'base currency'. For cost to trade this pair is the second digit after the point of the quote, this cost must be paid in advance by you to the market makers to get into a position. For this trade, the cost is 4 pips or the spread is 4 pips.

In summary, the 'base currency' is always on the Left side of the quote or before the slash (/) and the 'cost to trade' (aka spread) is the different of the last digit of the two prices. This is the only cost the trader to pay without any additional costs whatsoever.

Short Vs Long Term Position

To make profit in the currency market, you must recognize the base and cost of the trading pair, prior to enter into a position. And, if you feel the value of the currency that is non-base increased, it is time to 'buy'; Otherwise, sell that pair!

Some gurus in currency exchange named a sell position as short-term investment (go-short) which you must cash-out (liquidating) after an hour or less trading and for a buy position named as long-term investment (go-long) which you can carry on up to few days on an active position, this would lead to the trading of 'Futures' (a form of currency trading with a position set in future as price met).

The issue here is; Why do you want to 'go short'? That's depend on who you ask! Say, after you've reviewed not just economic conditions but few other factors such as political movements, levels of unemployment, global crude oil and gold prices changed and etc… to determine whether to take a buy or a sell position. But, you're not satisfied with the above economic information, you may want to try other methods to protect your investment. The other way to predict future price movements is to analyze the pattern of the past changes in prices that recorded and set up to view in form of chart.

After you've combined both economics and charts analysis and the result shown an unstable market, your best bet is to take a short term position along with a 'stop loss order'. In short term position, also called a 'sell' position, it's important to follow the boards' price indicator solely shown in sell section, you are should be very considerated to liquidate that position as price had gone lower, the lower the price, the more profits you made!

Otherwise, as you feel the value of the currency that is not base will increase in future, then you want to 'go long' (long term position) or to 'buy' that pair along with a 'limit order'. In this case, you'll watch the boards' price indicator solely shown in sell section, as long as the price is go higher and higher, that is the profits you made!

In summary, if you can predict the value of base currency is to increase or the non-base currency weakening, it's time to take long term or to buy that pair, and if you felt the value of base currency is weakening or the non-base currency will get stronger in future, you may consider take short term or to sell that pair. That's a 50/50 chance to make profit in the currency market.

Next Subject: Economic Basics.