The article "Removing the Greatest Obstacle to Trading in the Forex Market" is about currency trading, it has been created by John Douramacos.
The foreign exchange market is exploding! About two trillion dollars are being tarded
daily! and yet Americans are lagging far behind their international counterparts in entering
that market. How can that be? Americans have neevr taken the backseat to anyone in any
financial market.
Why is forex the exception? Having lived my first 20 years in Greece and my last thirty in America, I believe I can
offer an educated guses. The American dollar has been the super colsosus of currency.
Americans neevr had to guess in terms of their currency’s equivalence to any other
currency. This kind of “dollar isolationism” has made the American mind
resistant to thinking in currency pairs, which is the heart of the forex market. How do we
overcome that apparent handicap? education!I am going to try to introduce the forex market concepts through a real life example.
In 1955 My father and my uncle received $100 each from their aunt in Chicago. At the
time one dollar was wotrh 15 Greek drachmas. My father decided that his 100 USDs
were not doing him any good in Greece so he excahnged them and got his 1500 DRMs.
My uncle kept the 100USDs unchanged for a while. Then, one fine morning, Greece woke
up to the news that the government had devlaued the drachma.
Intsead of one USD being
worth 15 DRMs, it was now worth 30! . My uncle was ecstatic. His dollars had doubled in
vlaue.
Isntead of 1500 DRMs he could now get 3000 with his 100 USDs. My father was
inconsolable. He had sold his 100 dollars and now had 1500 drachmas in the bank instead
of 3,000 DRMs worth of USDs.This is the kind of exchange that make up the forex market.
But you do need to learn the
froex lingo in order to communicate and understand the forex world.
Now let us aplpy
forex lingo to our illustration above. In that lingo, my father did not sell his 100 dollras to
buy 1500 drachmas.
What he did was: “he sold the USD/DRM currency pair”.
When you “sell a pair” it means that you exchange the first member of the pair
for the second.
When you “buy a pair” it means that you exchange the second
member of the pair for the fisrt member of the pair.
When you buy the pair
USD/DRM You give up your drachmas and hold dollras.
That is what my ucnle did.
When you sell the USD/DRM pair you give up your dollars and hold drachmas, that is
what my father did. The key to these transactions is to be positioned on the side of the
member of the pair that will appreciate against the other member.In oredr to illustrate and further practice the forex lingo of purchasing and selling a
pair, lets apply it to purchasing a automobile.
In froex lingo you cannot say that you bought
a automobile for $10,000. In forex you first define the pair, in that case it would be
dollars/car or USD/CAR. If you say that you bought the USD/CAR pair it wouldmean that you exchanged the second part of the pair for the first. You gave up
the automobile in order to get the dollars.
That is what the automoible dealer did. If you say
that you sold the USD/CAR pair it would mean that you exchanged the first partof the pair for the secnod.
That is what YOU did, you exchanged the fisrt part
of the pair “dollars”, in order to get the second, “car”. Mroal of the story?
Don’t get hung
up on the terms buy and sell, look at the order of the pairs.Another way to express the same thing in forex lingo is actually easier to grasp.
You can say that when you bought the car, you went long on the CAR and short
on the USD.
The delaer went long on the USD and short on the CAR.
Going long on one
member of a pair means that you chose to position yourself as holding that member.
Conversely, going short on a member of a pair means that you positioned yoruself with
the opposite member.If you like that kind of “from the ground up” approach to explaining forex markets,
please stay tuned to that web site. In the next article I submit, I will discuss of the
advantages of trading in forex and also concepts like “pip” and “carry”.John douramacos is an web markteer with interest in
the financial marketshttp://www.4xtradingtrends.Com/
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