Currency Market Basics

Main currencies and their acronyms:

The currency pair is a ratio of one currency price to another.

For example, EURUSD:

• first comes the euro as the base currency against the US dollar;
• in second place is the quoted currency. It measures the price of the base currency.

There are a lot of currency pairs like this. The most actively traded currencies are euro, pound sterling, Japanese yen, US dollar, Swiss franc, Australian dollar and Canadian dollar.

In RoboForex, trade is based on this Contract Specification.

Exchange rate is the price of the base currency expressed in the quoted currency. For example, the rate of 1.2201 means that 1 euro can buy 1.2201 North American dollars.

Spread. In any financial market prices for buying and selling currencies cannot be the same. There is always a purchase price (ASK) and a selling price (BID). The difference between the ASK and the BID is the spread, which is the cost a trader pays for transactions.

Let us consider this example: if a trader buys a currency at 1.2201 (ASK = 1.2201), then the selling price will be several points lower than the purchase price (for example, BID = 1.2199). So, to make a profit, the trader will have to wait until the selling rate increases by three points, and will be 1.2202, one point larger than the purchase price.

Swap is the term for the transfer of the forex online transaction until the next day. Since all world currencies are tied to a particular union or country, and central banks have different interest rates for commercial banks, from the investments standpoint, the best currency pair would be the one with the higher interest rate.

The swap calculation is based on the currency you bought and its ratio to the quoted currency. The swap can be both positive and negative.