FX / Currency Trading

The trading of currencies knows no pause. Around the clock, 24 hours a day, exchange rates determine events on the world markets. The FX market is the most liquid area of the financial market and is primarily dominated by institutional investors. Currency trading takes place in a decentralized manner, in interbank trading. In recent years, technologies have been developed that allow different liquidity providers to be pooled together. Previous barriers to accessing the global FX markets are now almost non-existent for private investors.

On this information page we have compiled important information for you, which should give you a first insight and further knowledge about the functioning and essential features of foreign exchange trading.

Interested in currency trading? Here you can test risk-free.

What does forex trading mean?

Everyone is talking about it, but what is it all about trading currencies, also known as FX trading, foreign exchange or Forex for short? What do you need to know? How does it all work?

Exchange rates

Currency pairs - are not herd animals, yet they never appear alone but always in pairs. Cross rates - another term - are always in a very specific relationship to each other. Exchange rates express in value the price that is determined when an initial currency is exchanged ("exchange", in financial terms "conversion") for a target currency. Exchange rates are subject to fluctuations, which are described as volatility in the environment of foreign exchange traders.

The 1 × 1

/USD EUR $ Base Currency first (left) component second (right) component of a currency pair of a currency pair which represents the reference unit ("1") which defines the exchange rate of the exchange rate defines as price Quote Currency
Currency pairs consist of two elements, the base currency and the quote currency

Standardized designations

The short forms of the individual currencies are based on the ISO system (ISO standard 4217). The generally known currency pairs are derived from the three-digit letter combinations. EUR and USD become EURUSD and its rate can be tracked worldwide via all tickers.

EUR

Euro

GBP

British Pound

USD

US Dollar

JPY

Japanese Yen

CHF

Swiss Franc

AUD

Australian Dollar

NZD

New Zealand Dollar

CAD

Canadian Dollar

HKD

Hong Kong Dollar

TRY

Turkish Lira

KRW

South Korean Wong

MXN

Mexican Peso

CNH

Chinese renmint

SEK

Swedish krona

PIP - The FX Reference Size

A pip is the smallest integer price movement that an exchange rate can make according to the conventions of the foreign exchange market. Most currency pairs are quoted to four decimal places, with a single integer pip at the last (fourth) decimal place. One pip is arithmetically equivalent to 1/100 of 1 percent or one basis point.
EUR/USD $1,083 6 4 4 One pip $1,083 7

24/5

Interbank trading in the field of currency trading takes place around the clock, 5 days, 24 hours (hence the abbreviation "24/5"). What was reserved exclusively for institutional investors a few years ago is now available to almost everyone - including private customers. On the FX market, investments can be made around the clock on weekdays. Trading starts on Sunday night from 01:00 with the Asian session and ends on Friday at 23:00 with the New York session.

Left, Right, Center

BID

ASK

Always the lower quotation

Always the higher quotation

Price to Sell a position

Price to Buy a position

Spread/ Distance between BID & ASK price

Open a Short position

Open a Long position

Investor expect falling prices, Expects profit by closing the position at a lower price than the price at which the (short) position was opened.

Investor expect rising prices, Expects profit by closing the position at a higher price than the price at which the (long) position was opened.

Close a Long position

Close a Short position

Lot

The standard trading unit in currency trading is called a lot. One lot is equal to 100,000 units of the base currency, for example, if someone talks about buying 1 lot of EURUSD, then 100,000€ should be exchanged for USD (Euro sold --> US Dollar bought).

sell buy 1,0836 4 1,0838 2 fractional pips bid You can sell1 Euro for1,08364 US Dollars You can sell1 Euro for1,08382 US Dollars 1,08382 - 1,08364 = 0.00018 or 1,8 Pip spread 1,8 Pip ask EUR / USD

Interpretation of exchange rates

The chart demonstrates how to read and interpret the information corresponding to the pricing of exchange rates.
One Euro is equal to 1,08374 U.S. Dollars One U.S. Dollar is equal to 156,430 Japanese Yen EUR/USD Currency Pair Exchange Rate 1,08374 156,430 USD/JPY

The PIP-Family

From this visualization and the sample example, we can see how the value of a currency (BCU) relates to the value of a unit.
1.000 PIP 100 PIP 1 PIP Calculations 2773747 6 1,08341,0841,041,084 783737 7 1,08341,0841,041,084 3 - +1 PIP+10 PIPs+100 PIPs10 PIPs = = = = 10 PIP 0,1 PIP 1, 0 8 3 7 4

From the example of the calculation model, the +/- values and the result from this, it can be deduced that the representation is a long position. If the same calculation were used for a short position, the signs would have to be exchanged. You can use the simulator provided here to get to the bottom of how it works using your own parameters.

The difference decides ...

... decisively on the amount of the costs priced into the exchange rate. Always remember that the spread is the premium that you have to take into account as a fee when buying or selling a currency. Depending on the size of the position, a few hundred euros can quickly become due as a premium.
EUR/USD SELL BUY 1,08 1,08 4 4 36 1.0 Tight spread 37
A rule of thumb: exotic currency pairs as well as quotations outside liquid trading hours are characterized, in addition to rather low liquidity, by the fact that buying and selling prices regularly expand. Similar scenarios can be observed immediately before the announcement of important economic data, such as the Non-Farm Payrolls in the USA.
USD/ZAR SELL BUY 18,16 18,17 0 0 57 90 Wide spread 47

What is important for traders & investors

Lot, Pip, Spread & Co. .... what especially newcomers should know


If you are interested in currency trading, the relationships between order size, pip (or tick) value, pip (or tick) size and difference between bid and ask price are important. If you know all the parameters, you can, for example, determine exactly how high the fees are that you have to calculate mentally for the respective transaction or what price performance is required to compensate for the spread between buying and selling.

A prime example:

The euro briefly traded at 0.96x against the U.S. dollar, but has since recovered sustainably from those lows. You think that the euro could continue to appreciate and consider buying 1 lot at a price of 1.07x. If this transaction is executed, you will have exchanged 100,000€ (equivalent of 1 Lot) into USD. The difference between the buying and selling price is 1 PIP, which conversely means that you have paid $10 more for this transaction than you would have received if you had sold simultaneously.

Since you usually do not pay any fees in currency trading, the transaction costs are included in the pricing of the buying and selling prices. This is nothing unusual, in fact it is common practice. What you need to take into account are multiplier effects. If you trade not 1 lot but 10, you not only acquire 10 times the trading position (=1,000,000) but also have to consider the fee × factor 10. The same applies to trading with fractions of lots, so-called fractionals, which are often available at brokers as mini (×1/10), as micro (×1/100) or as nanolot (×1/1000).

If you have not yet had enough time to study these or similar topics in detail, we recommend training in a virtual test environment, also commonly referred to as demo, paper or sandbox trading, before investing real money. If you are interested, please feel free to use the solutions offered through us.

Yes, I would like to practice without risk for the time being .

The "nicknames" of the currencies/currency pairs

  • USD (U.S. Dollar) – Greenback or Buck
  • GBP (British Pound) – Sterling
  • EUR (Euro) – Fiber
  • CHF (Swiss Franc) – Swissy
  • CAD (Canadian Dollar) – Loonie
  • AUD (Australischer Dollar) – Aussie
  • NZD (NewZeeland Dollar)- Kiwi
  • NOK (Norwegian Krona) – Noki
  • SEK (Swedish Krona) – Stoki

  • EUR/GBP (Euro/ British Pound) – Chunnel
  • EUR/JPY (Euro/ Japanese Yen) – Euppy
  • EUR/USD (Euro/ U.S. Dollar) – Fiber
  • EUR/RUB (Euro / Russian Ruble) – Betty
  • GBP/USD (British Pound/ U.S. Dollar) – Cable
  • GBP/JPY (British Pound/ Japanese Yen) – Gopher
  • USD/JPY (U.S. Dollar/ Japanese Yen) – Ninja
  • USD/RUB ( U.S. Dollar/ Russian Ruble) – Barney

  • EUR/BTC (Euro/Bitcoin ) – Nakamoto
EUR/GBP Euro vs. British PoundChunnel
EUR/JPYEuro vs. Japanese YenEuppy

Where do the names come from?

Why is the dollar called the "greenback"?

The U.S. dollar is called the greenback because of the paper bills that were issued during the American Civil War in 1861. These bills had green coloring on the back.

Second nickname of the USD - Buck

The U.S. dollar is called "buck" because Native Americans used to use deerskin (a male deer is called a "buck") to trade dollars.

Why is the Euro called "Fiber"?

The nickname of the euro currency Fiber ("fiber") is the least known explanation, but many say it comes from the fact that the paper used for euro banknotes is made of pure cotton, which makes it more durable and gives it a special feel.

Why is GBPUSD called a cable ("Cable")?

The GBPUSD currency pair is called Cable because there was a cable under the Atlantic Ocean that connected the United Kingdom to the United States and was used to synchronize the British pound with the U.S. dollar by telegraph. The cable was laid in 1858 and enabled the transmission of foreign exchange rates from London to New York trading desks.

Why is the British pound (GBP) called "sterling"?

The British pound is officially called the pound sterling and is not just a nickname. Sometimes it is also abbreviated as Pound or Sterling. The name sterling comes from the time when the British pound had the same value as a pound of sterling silver.

Why is the Canadian dollar called a "loonie"?

Loonie is a nickname for the Canadian dollar because a dollar coin has a picture of a bird named Loon, which is very popular in Canada.

Why is the New Zealand dollar called "Kiwi"?

The New Zealand dollar is nicknamed Kiwi, which is the national symbol of New Zealand, which is also the name of a bird called Kiwi. It is small, brown, furry and cannot fly, just like a kiwi fruit.

Why is EURGBP called "Chunnel"?

The EURGBP currency pair is sometimes called Chunnel, which is an abbreviation for the Channel Tunnel, which connects the channel between Great Britain and France (Europe).

 

Most liquid currencies gallery

Foreign exchange trading takes place mainly in four main currencies traded against the U.S. dollar, i.e. EUR, JPY, GBP and CHF. In foreign exchange trading, a distinction is made between major currencies ("majors"), minor currencies ("minors") and exotics ("exotics"). Synthetic cross currency pairs can be structured from all individual currencies.
Euro vs. US Dollar
Fiber
British Pound vs. US Dollar
Cable
US Dollar vs. Japanese Yen
Ninja
US Dollar vs. Canadian Dollar
USD vs CAD
Australian Dollar vs. US Dollar
AUD vs. USD
New Zealand Dollar vs. US Dollar
NZD vs. USD
US Dollar vs. Swiss Franc
USD vs. CHF

Trader's Slang

When referring to price changes in currencies, the term pip is often used in trader circles. Pip as an abbreviation stands for 'point in percent' or percentage point, which according to the meaning serves as a linguistic aid to designate the absolute difference between two relative indications. In currency trading, pip on its own forms the mental bracket of the fourth decimal place of an exchange rate. The exemplary description "15 pips profit realised" refers to the change in value between the exchange rate at the time of opening a trading position and the time of closing the position. The reference point for determining the pip value is the quotation currency. The change of 1 pip in EUR/USD therefore has a different equivalent value than 1 pip in USD/ZAR. As always, exceptions confirm the rule. There are special features to consider with the exchange rate of the US dollar ("$") to the Japanese yen ("¥"). Here, a PIP is assigned to the second decimal place. The fifth decimal place is usually called a 'fractional pip' or a 'pipette'.

Calculation of a Pip-value

Official Fixing of the European Central Bank

In the following overview we provide our users with the ECB currency fixings as information. These are reference rates that are fixed once a day. In contrast to interbank trading, where price indications regarding buying and selling rates are continuously determined from supply and demand, these prices are static and apply for the period until the next fixing.

Disclaimer: Please note that the content presented here is for informational purposes only. It should not be understood or interpreted as an investment recommendation, investment advice or solicitation. The information provided by ayondo should not be viewed in isolation. It represents only one component in the area of education and training on topics focusing on the financial market, investments and trading. Our aim is to impart knowledge that can be acquired through self-study and backed up by further research of your own.

If you are thinking about investing in financial products, we recommend that you check them in advance, particularly with regard to the associated risks. When trading with leverage products or on margin, a total loss of the invested capital cannot be excluded. In order to be able to acquire practical experience under real market conditions, we offer corresponding opportunities through our cooperation partners. Take advantage of these opportunities and prepare yourself fully for investments with real capital.

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