[...]... and it wasn’t long before brokers and dealers around the world devised ways to make markets outside the central location of the futures market in Chicago The name forex is an abbreviation for the words “foreign exchange.” Worldwide, the forex market is the most actively traded financial market The daily volume on the forex market is equal to three to four times that of all other markets combined, with... transactions on the forex markets Figure 1-4 shows the breakdown of volume traded for the major currency pairs Cross Currency Pairs Cross currency pairs (see Figure 1-5) are those which do not involve the U.S dollar They tend to trade at lower volume, and the spreads are usually higher for these pairs than for the 7 Mastering the Currency Market Figure 1-3 Major Currency Pairs Estimated Trading Volume by Currency. .. options, and forex Because of the liquidity of the international currency markets, the low cost of entry, and the advent of easy-to-use platforms and free charting packages, along with mini and micro contracts, most of the examples we give will be in the forex markets Foreign Currency Trading Foreign currency trading on a retail level was the brainchild of Leo Melamed, chairman emeritus of the Chicago... Market XXX / YYY XXX is the “base” currency and YYY is the “counter” currency Figure 1-6 Base Currency versus Counter Currency pair (see Figure 1-6), the first currency listed is the base currency and always has a value of 1.0 The second currency listed is the counter currency For example, EURUSD is the value of the euro expressed in U.S dollars Understanding Currency Values The following example shows... a gold standard 5 Mastering the Currency Market • In times of rapid political and economic change, the gold standard becomes a problem Therefore, after World War I and World War II, many countries abandoned the gold standard and adopted the Bretton Woods Accord • Between 1944 and 1971, exchange rates for foreign currencies were set at a price fixed against the U.S dollar • In December 1971, the Bretton... include speculators and private investors Forex Basics As we mentioned previously, the forex market is traded 24 hours a day during the workweek and closes on Friday at 5 p.m EST Figure 1-2 shows the opening and closing times The hours are adjusted in the United States during Daylight Savings Time What Is Traded on Forex? Almost all the transactions on the forex market involve currency pairs However,... individuals Standard $100,000 Mini $10,000 Micro Figure 1-9 $1,000 Forex Contract Sizes 12 t y pe s of f i n a n c i a l m a r k e ts Bid and Ask Prices The ask price is the price at which a trader will buy the base currency in exchange for the counter currency The bid price is the price at which a trader will sell the base currency in exchange for the counter currency The bid price is always lower than the. .. tighter than the retail forex spread This difference between the retail spread and the institutional spread is profitable for forex dealers, particularly since a high percentage of the participants trading with the dealer are not professionals Having this distinct advantage, along with the Internet to promote their services, dealers spend a 17 Mastering the Currency Market good percentage of their profits... upgrading their state-ofthe-art trading platforms and charting packages to entice clients to trade with them These efforts by the dealers to improve their order delivery platforms and charting and analysis packages can benefit educated clients Another advantage for clients who choose to trade with a forex dealer is the smaller contract sizes One of the main reasons retail clients lose money trading is that they... price Figure 1-10 shows how the bid and ask prices equal the spread The Spread The spread is the difference between the bid price and the ask price Figure 1-11 shows how the spread is calculated The spread is the compensation a broker receives for every Understanding Currency Quotes EURUSD 1.5545/1.5547 Bid ϭ 1.5545 Ask ϭ 1.5547 Figure 1-10 Bid and Ask Prices ϭ Spread Calculating the Spread EURUSD 1.5545/1.5547 . class="bi x0 y0 w0 h1" alt="" MASTERING the CURRENCY MARKET This page intentionally left blank MASTERING the CURRENCY MARKET Forex Strategies for High- and Low- Volatility Markets JAY NORRIS. metals through most foreign exchange dealers. Mastering the Currency Market 6 The Six Majors The most commonly traded currency pairs on the forex market are called the six majors. They are the British. dealers around the world devised ways to make markets outside the central location of the futures market in Chicago. The name forex is an abbreviation for the words “foreign exchange.” Worldwide, the forex