What does one purchase or sell while making an overseas transaction of currency? In reality, one does with the actions, purchasing and selling.
Transaction of purchasing EUR/USD at nearly 0.8800 is in reality purchasing Euro and selling Dollar at nearly 0.8800 cent. When a Euro increases in the value in association with the dollar, the cost will increase and the dealer will be making large amount of money. Whatever may be the reason, a dealer cannot execute the order utilizing the dealing or trading platform, verbal order to the broker can be following:
“I purchase 100,000 euro and will sell dollar at trading market” or “I purchase 500,000 USD/EUR on nearly .8800 stops, five lots dealt or “ I purchase nearly 100,000 euros in comparison to the dollar at a trading market”, a lot dealt. What is needed on all the verbal orders are amount, currency pair the charge and order type. Just saying “I purchase Euro at trading market” is not sufficient as this does not mention what the counter currency the dealer plans to be selling.
Understanding the Whole Concept
As the rate of exchange represent what an immovable quantity of currency is similar to in accordance with other currency, we noticed there is a single piece for the pair of currency.
The movement of the cost determines whether the currency is becoming weaker or stronger.
If USD/EUR rate of exchange moves from nearly 1.2097 to nearly 1.2124, we concluded that EUR got more powerful, USD weaker.
While having a look at the overseas rate of exchange or costs an action to purchase the pair of currency implying purchasing base currency, EUR and selling counter exchange or USD.
If USD/EUR rate of exchange moves in a high position, as thought of, the dealer can nowadays sell USD/EUR at a high cost. The dissimilarity represents a gain to the dealer that was lengthy or who purchased the USD/EUR pair of currency.
Another method of looking at this is if the rate is about 1.2097, a dealer can exchange one EUR for about 1.2097 dollar. However, at nearly 1.2124, the similar EUR can be swapped for a high amount of the USD, in such case it is nearly 1.2124 USD dollar.
EUR has got stronger compared to dollar.
In these examples, what are the things that have happened to respective currencies in pairs of currency?
USD/EUR moves from about 1.2096 to nearly 1.2134
The USD/CHF moves from about 1.2450 to nearly 1.2430
The JPY/USD moves from nearly 108.90 to about 113.00
Reply: When EUR/USD rate of exchange moves from about 1.2096 to about 1.2134, EUR gets powerful and at the same time USD becomes weaker. Keep in mind when a single currency gets powerful, other things get weaker.
Answer: When CHF/USD rate of exchange moves from nearly 1.2450 to about 1.2430, USD becomes weaker and Swiss Franc also becomes powerful.
Reply: When the JPY/USD rate of exchange moves from about 108.90 to nearly 113.00, USD becomes powerful and Japanese Yen becomes weaker.
Lessons to be learnt: The rate of exchange of the pair of currency reflects the amount of counter currency is paid for base currency at a point of time.
If you purchase a single currency, you will be selling another type of currency for obtaining the coinage you are purchasing.
If you remain Long USD/EUR you have purchased “long” Euro or base currency and had sold “small” US dollar or counter money.
If you remain small EUR/USD which have been sold “small” Euro or base currency and purchased “long” US Dollar or counter currency.
When the pair of currency or the rate of exchange moves from low cost to a high cost, base currency is strengthened or gotten powerful.
Converse is regarded to be true for counter currency. This is, it weakened or become weaker as Base currency has become stronger.