Trade Currency and Price Currency

When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell Japanese yen. Or buy the Euro and sell Japanese yen, or any other combination of dozens of widely traded currencies. But there is always a long (bought) and a short (sold) side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening and one of them weakening. The trade currency is normally, but not always, the currency with the highest value. When trading US dollars against Japanese yen, the normal way to trade is buying or selling a fixed amount of US dollars, i.e. USD1,000,000. When closing the position, the opposite trade is done, again USD1,000,000. The profit or loss will be apparent in the change of the amount of yen credited and debited for the two transactions. In other words, your profit or loss will be denominated in Japanese yen, that are known as the price currency. As part of our service, a good broker will arrange automatic exchange of your profits and losses into your base currency if you require this.

This way of trading is different to the futures markets, for example, where the Euro, pounds and yen are the fixed trade currency, resulting in a US dollar denominated profit or loss. You can, however, also choose to trade in this reciprocal manner in foreign exchange markets but it is not the norm.

Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages.
  • Digg
  • del.icio.us
  • Netscape
  • StumbleUpon
  • Technorati

Written by admin on November 5th, 2007 with comments disabled.
Read more articles on trade and currency and Forex Trading.

Related articles

Comments disabled

Comments on this article have been disabled.

Disclaimer: Forex trading carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with currency Exchange trading.