The currency day trading market has its own set of market and trading conventions and related lingo, just like any other financial market. If you are new to currency trading, the terminology may take some getting used to. The main difference between currency trading and stock trading is that the buying and selling happens simultaneously. When you buy stocks, you buy 100 shares and hope the price goes up and sell it one day. With currency day trading the purchasing of one currency involves the sale of another currency. For example, if you are looking for the dollar to go higher, the question would be “Higher against what?” The answer ha to be another currency, it also means that the other currency has gone down against the dollar. To think of it in stock market terms, when you buy a stock you are selling cash. When you sell a stock, you are buying cash.
Currency day trading step one is to understand that currencies come in pairs. The currency day trading market refers to trading currencies by pairs, with names that combine the two different currencies being traded against each other or exchanged for one another. There are currency pair nicknames or abbreviations, which reference the pair and not necessarily the individual currencies involved.
The U.S dollar is the central currency against which other currencies are traded. In its most recent triennial survey of the global foreign exchange market in 2004, the Bank for International Settlements found that the US dollar was on one side for 88 percent of reported currency day trading market transactions.
The US dollars central role in currency day trading stems from a few basic factors:
The US economy is the largest national economy in the world
The US dollar is the primary international reserve currency
The US dollar is the medium of exchange for many cross-border transactions. For example, oil is priced in US dollars. So even if you’re a Japanese oil importer buying crude from Saudi Arabia, you’re going to pay in US dollars.
The United States has the largest and most liquid financial markets in the world
The United States is a global military superpower, with a stable political system.
Major currency pairs that every trader should know for currency day trading
EUR/USD This is the currency pair of the US dollar and the Euro-dollar
USD/JPD This is the currency pair of the US dollar and the Japanese-yen
GBP/USD This is the currency pair of the UK sterling dollar (Nickname Sterling or Cable) and the US dollar
USD/CHF This is the currency pair of the US dollar and the Dollar Swiss (Swissy)
USD/CAD This is the currency pair of the US dollar and the Canadian Dollar (Loonie)
AUD/USD This is the currency pair of the Australian dollar (Aussie or Oz) and the US dollar
NZD/USD This is the currency pair of the New Zealand dollar (Kiwi) and the US dollar
You see? Simple, these are the acronyms you will come across is currency day trading.
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