FOREX Basics

FOREX Basics

Forex is an acronym for FOReign EXchange and is an over-the-counter foreign currency product that uses a floating exchange rate system. Foreign exchange is the world’s most liquid market and is significantly larger than all the futures markets combined. With the development of online trading platforms, what once used to be a market dominated by enormous money center banks and other institutional traders, has now become accessible to smaller traders who have access to take advantage of trading foreign currencies with FOREX.

FX Liquidity

Currencies can be bought or sold and are subject to the laws of supply and demand just like any other commodity. When the demand is greater for one currency the cost of that currency in terms of other currencies will go up. Factors that affect the supply and demand for a currency include economic growth, interest rates and political stability amongst other things. The objective of FOREX currency trading is to exchange one currency for another in the expectation that the market rate or price will change so that the currency purchased has increased its value relative to the one sold.

Currency Pairs

Currencies are always priced and traded in pairs in the FOREX market. One currency is simultaneously purchased while another is sold. Traders can determine which pair of currencies they wish to trade. If price of the currency purchased appreciates in value, then that currency must be sold back in order to lock in the profit. An open trade or position is one in which a trader has either bought/sold one currency pair and has not sold/bought back the equivalent amount to effectively close the position.

Buying or Selling

The first thing that a trader decides is whether to buy or sell a particular currency relative to another currency. If a trader is speculating that the exchange rate will fall he/she will enter a short order with an expectation to profit from the trade and he/she will enter the SELL rate. The exact opposite is true for a trader speculating that the exchange rate will rise. In this instance the trader will enter the BUY rate with an expectation to make a profit from the rise of the exchange rate relative to the currencies he/she is trading.

Just like in other markets there are two rates for all currency pairs: the bid, or the rate at which traders can sell, and the ask, or the rate at which traders can buy. There is a small difference between the two. This difference, known as the spread, defines the cost of the trade. For example, if EUR/USD is trading at 42/46 respectively the spread is four pips. Spreads are a part of all markets, but are typically “hidden” in the broker-based equities and futures markets.

Leverage

Simply put, leverage is the ability to trade with borrowed funds. It is the process in which a trader can take a market position much larger than the value of the trader’s account. Leverage is a tool by which traders can determine the level of risk — and thus, the potential reward they assume in the market. The more leverage used, the more volatile the trader’s percentage return of profit or loss can be. Trader’s leverage ration is the value of the position assumed divided by the amount of money deposited in the account.

For example, if trader’s position size is $100,000 and the account balance is $10,000, the leverage ratio is 10:1. FOREX trading offers 100:1 leverage and in some instances 200:1 leverage. However, we do not recommend using excessive leverage. Using leverage exaggerates both gains and losses. Using leverage can generate large gains or losses even when market conditions are relatively calm. In cases where a trader surpasses the maximum leverage allowed we may close all open positions in the account. This may result when account equity diminishes as a result of trading losses.

In trading FOREX, there is risk of debit balances to your account. That means that, if a trader is dead wrong and there is a catastrophic market move against the position, he/she can lose more than the amount of money he/she has in the account.

Rollovers

In the spot FOREX market, trades must be settled in two business days. If a trader sells 200,000 Euros on Monday, he/she must deliver 200,000 Euros on Wednesday, unless this position is rolled over. For positions open at 5pm EST there is a daily rollover (interest payment) a trader either pays or earns on an open position depending on the established margin level and position in the market. In any spot rollover transaction, there is a difference in interest rates between the two currencies that will be reflected in the overnight “loan.” Depending on what the prime broker charges for rolls, if the trader is long the currency with the higher interest rate in the pair, the trader may have a gain or loss on-the-spot rollover through the premium relationship of that currency relative to the short currency. The amount of the gain or loss is determined by the prime broker’s charge for rolls, interest rate differential between the two currencies, and fluctuates day-to-day with the movement of prices.

For positions that are open on Wednesday and held through 5 p.m. ET, the amount added or subtracted to an account as a result of rolling over a position tends to be around three times the usual amount. This type of rollover accounts for settlement of trades through the weekend period. If a trader does not wish to earn or pay interest on open positions they should close their positions by 5pm EST which is the established end of the market day. Most FOREX platforms automatically roll over (exchanged the trade forward to the next settlement date which is two business days at 5pm EST) all open positions. *Please note that it is possible to lose money on rollovers.

*Please note that liquidity, low latency, dealable pricing and tight spreads are subject to market conditions and are not guaranteed.

Why FOREX?

Why FOREX?

vCap FX provides 24-hour access to the over-the-counter foreign currency market with execution of both OTC spot FX, forwards and FX options through numerous ECN-based and direct bank-based execution platforms. Our team takes great pride in closely working with each of our clients providing them with advanced trading tools and exceptional client service. Our clients are institutional and professional clients who demand the very best in FX trading solutions, technology, wholesale dealing spreads, consistent liquidity, fast execution, and access to a wide range of sophisticated tools.

Worldwide Opportunities with FOREX

Because FOREX is part of the bank-to-bank currency market, it has many advantages over other markets. The FX market literally follows the sun around the world, moving from major banking centers of the United States, to the Far East, to Europe then back to the United States and is the world’s largest financial market.

With the development in technology as well as increased competition in the industry, what once used to be a market dominated by institutions, major currency dealers and occasional high net-worth individual speculators, FOREX has become accessible to smaller professional traders.

Some of the advantages of the FOREX market are:

  • Manage Foreign Exchange Risk
  • Conduct cross-border transactions more efficiently and securely
  • Obtain dealable pricing, greater liquidity and tighter spreads *
  • Greater Leverage
  • Low Margin Requirements
  • Automatic Rollovers
  • No Short-Tick Rule
  • Market transparency
  • Maintain complete anonymity
  • 24-Hour Trading

*Please note that liquidity, low latency, dealable pricing and tight spreads are subject to market conditions and are not guaranteed.

FOREX vs. Equities

Forex vs. Equities

If you are interested in trading currencies online, you will find that the FOREX market offers several advantages over equities trading.

24-Hour Trading

FOREX is a 24-hour market, which offers a major advantage over equities trading. Whether it’s 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading foreign currencies. Traders can always respond to breaking news immediately.

After hours trading for U.S. equities brings with it several limitations. ECNs (Electronic Communication Networks), also called matching systems, exist to bring together buyers and sellers – when possible. However, there is no guarantee that every trade will be executed, nor at a fair market price. Quite frequently, traders must wait until the market opens the following day in order to receive a tighter spread.

*Please note that liquidity, low latency, dealable pricing and tight spreads are subject to market conditions and are not guaranteed.

Superior Liquidity

FX boasts a daily trading volume that is significantly larger than the New York Stock Exchange, so there are always broker/dealers willing to buy or sell currencies. The significant liquidity of this market attempts to ensure price stability, especially for the major currencies. Because of the lower trade volume, investors in the stock market are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction.

*Please note that liquidity, low latency, dealable pricing and tight spreads are subject to market conditions and are not guaranteed.

Greater Leverage

The leverage offered by most FX dealers substantially exceeds the common 2:1 margin available in equity trading. At 100:1, traders can post $1000 margin for a $100,000 position, or 1%. However, such leverage can increase the potential for loss and even debits to your account.

While certainly not for everyone, the substantial leverage available from online currency trading firms is a powerful moneymaking tool. Rather than merely loading up on risk, as many people incorrectly assume, leverage is essential in the FOREX market because the average daily percentage move of a major currency is less than 1% (a stock can easily have a 10% price move on any given day). However, such leverage can increase the potential for loss and even debits to your account.

Lower Transaction Costs

The over-the counter structure of the FOREX market eliminates exchange and clearing fees. Costs are further reduced by the efficiencies created by a purely electronic market place that allows clients to deal directly with the market maker. Because the currency market offers round-the-clock liquidity, you may receive tight, competitive spreads both intra-day and night. Stock traders are more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after hours trading.

*Please note that liquidity, low latency, dealable pricing and tight spreads are subject to market conditions and are not guaranteed.

Invest in an up or down market

The ability to sell currencies without any limitations is another distinct advantage over equity trading. In the US equity markets, it is much more difficult to establish a short position due to the Zero Uptick rule, which prevents investors from shorting a stock unless the immediately preceding trade was equal to or lower than the price of the short sale.

You can easily and quickly diversify out of U.S. Dollars

The trade balance shows the net difference over a period of time between a nation’s exports and imports. When a country imports more than it exports, the trade balance will show a deficit, which is generally considered unfavorable to that nation’s currency. Many investors know that they should diversify some of their assets into foreign currencies, but to do so is difficult. Most U.S. banks, for example, do not offer foreign currency accounts. But by trading FOREX, you control hundreds of thousands of dollars worth of foreign currencies. For every $1,000 margin deposit, you can control up to $100,000 worth of Euros… or British Pounds… or whatever currency you believe will rise in the future.

You can analyze countries like stocks

Currencies are traded in pairs so if a trader “buys” one currency he is simultaneously “selling” the other. Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others.

FOREX vs. Futures

FOREX vs Futures

The dissimilarities between the two instruments range from philosophical realities such as the history of each, their target audience, and their relevance in the modern FOREX markets, to more tangible issues such as transactions fees, margin requirements, access to liquidity, ease of use and the technical and educational support offered by providers of each service.

By studying any market trading through the civilized world everything is valued in money, the root of all pricing. Global finance is the distribution and redistribution of money throughout different channels and different financial derivatives. There are many different methods to trading spot currencies as there are many types of traders. From technical trader watching for breakout patterns in consolidating markets to the fundamental traders speculating on mid-to-long term positions based on worldwide cash flow analysis and fixed income formulas, the methods for trading foreign exchange are many.

There are advantages and disadvantages to both futures and FOREX trading. Some of them are:

More leverage and liquidity than futures

The sheer size of the FOREX market is significantly greater than all futures markets combined making it the largest and most liquid market in the world.

FOREX, or foreign currency pairs, gives traders greater leverage than outright futures trading, of up to 100-to-1 and in some instances 200-to1 leverage. What this means is that for every $1,000 put up in margin, a trader can trade with up to $100,000 in currency value. $10,000 allows a trader to trade with $1 Million of currency and in some cases $2 Million. For every 1% move in the value of the currency pair that day a $10,000 profit or a 100% change in investment may be realized on a $10,000 account with 100-to-1 leverage. However, such leverage can increase the potential for loss and even debits to your account.

Futures trading, usually provides leverage of around 2%, which means that a trader can do twice as much with his/her money trading FOREX, however the actual margin requirements for leverage vary with account size, but a trader is able to select the degree of leverage they wish to employ in trading. However, such leverage can increase the potential for loss and even debits to your account.

Margin Rates

Trading in the FOREX markets provides advantages over trading currency futures contracts. Margin rate or leverage that clients are given is one of the main advantages for traders trading spot currencies. In FOREX trading, customers receive one low margin rate for trades done 24 hours a day. In currency futures trading, the client has one margin rate for “day” trades and one margin rate for “overnight” positions. This can become a hassle for traders and decreases the overall tradability of the currency futures markets. Margin rates in spot currency trading vary from around 1 to 5 percent depending on the size of transactions a particular trader initiates. However, such leverage can increase the potential for loss and even debits to your account .

24-Hour Trading

The FOREX market is a seamless, 24-hour market unlike most futures exchanges. At 5 PM Sunday, New York time, trading begins as markets open in Sydney and Singapore. At 7 p.m. the Tokyo market opens, followed by London at 2 a.m., and finally New York at 8 a.m. FOREX traders enjoy unparalleled liquidity 24 hours a day. To explain the global effect on the FOREX market, there are three main economic zones that are linked throughout the world. For instance, when the Pacific Rim markets such as Japan and Singapore begin to slow, the European markets of England, Switzerland and Germany begin. These FOREX markets are followed by the North American markets of the United States, Canada and Mexico. As the North American markets begin to slow down for the evening, the Pacific Rim starts their trading day again. This example shows that traders are no longer limited to trading using a comparatively short, trading day offered by U.S. markets only.

Since the FOREX market, in a sense, follows the sun around the globe the market, it rarely experiences periods of illiquidity. This means that any trader in any time zone can trade FOREX at any time during the day or night. Traders no longer have to wait for markets to open when news has already hit the streets or have to stop trading because the CME, CBOT or other American futures pits have closed for the day. This gives the FOREX trader added flexibility as the FOREX market allows traders to react to favorable or unfavorable news giving them the ability to trade immediately. In addition, FOREX market also gives traders the added flexibility of determining your trading day.

Many futures markets are only open during US hours although there are some that trade around the clock as well. Globex market is a good example. While the Globex market is only closed for a 15 minute period each day, the liquidity available after the open outcry market is closed in Chicago is normally very low. Spreads are wider and the ability to place larger orders is limited. Due to this, most volume traders are forced into trading the exchange for physical market overnight. The EFP market is the spot market priced in futures pricing. EFPs are not available from an electronic interface and come with additional fees. Electronic access, speed, no fees and unmatched liquidity, 24-hours-a-day makes FOREX market the choice for the foreign currency trader. *Please note that liquidity, low latency, dealable pricing and tight spreads are subject to market conditions and are not guaranteed.

Automatic open position rollover

All open positions are rolled over automatically every two days. As is true with futures, there is often a carrying cost associated with rolling over a position. If the prime broker does not charge a fee for rollovers, FOREX positions sometimes can actually make money on the roll-over. That is because the profit/cost is determined by the difference in interest rates between the two currencies versus what the prime broker charges. Thus, if a trader is long the currency with the higher interest rate in the pair, he/she will actually gain on the spot rollover through the premium relationship of that currency relative to the short currency. The amount of the gain or loss is determined by the prime broker’s charge for rollovers and interest rate differential between the two currencies which fluctuates day to day with the movement of prices. For example, assuming the prime broker doesn’t charge the customer for rollovers, on any given day, the rollover can be $2 per lot for USD/JPY and $15 for GBP/JPY.

*Please note that it is possible to lose money on rollovers.

Interest Charges

There is an interest rate charge of approximately 1% per year for FOREX trades. Although this may sound like an immaterial rate, a trader can trade with a lot larger amount of FOREX than the equity value in his/her account. With a 100:1 leverage on a $50,000 account with $1,000 margin a trader can trade $5 million of currency in the FOREX market. If the $50,000 account was leveraged for 1 year, the 1% interest charge will cost $50,000. Traders should always understand the implications of leverage and fees and costs associated when trading with leverage.

With futures, there is no interest charged on trader’s account or positions.

Exchange Rates

If a trader is located in a country other than the United States of America and need to transfer the local currency into US dollars to deposit into the trading account, please be aware of the currency exchange rate. For example, you are British and want to open an account trading US futures markets. You convert £50,000 British Pounds Sterling into US Dollars at an exchange rate of 1.8000 USD/GBP and get $90,000. Six months later, the dollar has fallen in value against the Pound and you could now get 1.9500 USD for every GBP.

Were you to not make any trades at all during this period, or your trades had broken even, and you then decided to convert your dollars back in Sterling, you would only get £46,154 (less the spread and commission fees). You would also have received no interest on your money while it was sat in your trading account, whereas you may have got 3% had you left it in a UK bank account. This has devalued your money by an additional £1350 in the 6-month period.

FOREX Pairs

Please note the examples below are NOT trading recommendations or investment advice. Any trades place based on such information is done so at your risk.

In the FOREX market, currency trading is always done in currency pairs, such as EUR/USD or USD/JPY. FOREX trades involve the simultaneous buying of one currency and selling of another, but the currency pair itself can be thought of as a single unit, an instrument that is bought or sold. If you buy a currency pair, you buy the base currency and sell the quote currency. The bid (buy price) represents how much of the quote currency is needed for you to get one unit of the base currency. Conversely, when you sell the currency pair, you sell the base currency and receive the quote currency. The ask (sell price) for the currency pair represents how much you will get in the quote currency for selling one unit of base currency.

Currency Crosses

Trading currency crosses opens a whole new side of the FOREX markets, as different crosses possess different qualities that can suit any style of trading. Some crosses move fast, some are plagued with low liquidity and some are extremely volatile with daily ranges that may exceed over 100 pips. While other crosses move relatively slow and exhibit low volatility, which is more suited for novice traders.
Another added benefit to trading FOREX crosses is the ability to collect substantial amounts of interest (i.e. GBP/JPY, NZD/JPY and other high yielding crosses) as the positive carry created by the interest rate differentials can add to a trader’s bottom line P/L.
The following are examples of situations that might lead you to choose a particular currency pair or cross to trade:

EUR/USD

If, for example, you think the U.S. economy will continue to fall and that will hurt the USD, you click on BUY, you are buying euros expecting them to go up against the USD. If you click on SELL, you buy U.S. dollars, expecting them to climb against the Euro.

  • Surprises in US economic releases – This pair is hypersensitive to US data and will move when results come as a surprise- especially indicators that measure growth or recovery in the US.
  • Talk of Euro as an alternative reserve currency – Because the US dollar is held as a reserve currency by many banks around the world, a diversification into euros would drive the value of the Euro up causing a sharp move in the pair.
  • Interest rate differentials – As the Fed raises interest rates, money will flow into the US as investors move to capitalize on these higher returns, boosting the value of the dollar.
  • Trade Deficit – Because the imbalance of more imports vs. exports has the potential to reduce the value of the dollar in the long run, the market is very concerned with the trade balance in the US. Changes can cause a big shift in the value of the US dollar.

USD/JPY

If, for example, you think that the Japanese government is going to weaken the yen in order to help its export industry, you would click on BUY, expecting the U.S. dollar to increase in value against the yen. If you think that Japanese investors are pulling money out of U.S. financial markets and repatriating funds back to Japan, you would click on SELL, expecting the yen to strengthen against the U.S. dollar as Japanese investors sell their assets and convert their dollars to yen.

  • Chinese Yuan -If China revalues its currency (thereby allowing it to become stronger and closer to its true value) then Japanese exports would be able to compete better in the US and China against Chinese products. If this happens, the Bank of Japan could then stop intervening in the market to keep the Yen weak, which would result in an increase in the value of the Yen
  • Oil prices – Japan is highly dependent on imported oil. Higher oil prices can impede both production and growth in Japan as it makes input costs significantly more expensive.
  • Japanese reserve diversification – Japan holds large reserves of US securities and currency. A diversification out of dollar only holdings could result in a large sell off in the US dollar, driving the price down.

GBP/USD

If, for example, you think the British economy will continue to be the leading economy among the G7 nations in terms of growth, thus buoying the pound, you would click BUY, expecting the British pound to strengthen against the U.S. dollar. If you believe the British are about to commit themselves to adopting the Euro, you would click SELL, expecting the pound to weaken against the dollar as the British devalue their currency in anticipation of merging with the Euro.

  • Shifts in monetary outlook for the GBP – Since the GBP is held by many in carry trades, this pair is very sensitive to any changes in interest rate outlooks.
  • UK housing market -The UK housing market is the Bank of England’s top gauge for inflation in the UK. The housing bubble prompted a series of rate hikes, and new developments are closely monitored by the market.
  • US economic data – The market is very sensitive to the outlook for the US economy, since recovery has been uncertain. A pickup can have implications for the US interest rate outlook, which could also affect the value of the GBP/USD.

USD/CHF

If, for example, you think the Swiss franc is overvalued, you would click BUY, expecting the U.S. dollar to strengthen against the Swiss franc. If you believe that due to instability in the Middle East and in U.S. financial markets the dollar will continue to weaken, you would click SELL, expecting the Swiss franc to strengthen against the dollar.

  • Geopolitical tension -US-negative developments in the world will cause a move in the pair as investors move funds out of US dollars into “safe-haven” Swiss francs.
  • Gold prices – Higher or lower gold prices will cause a corresponding move in the Swiss franc since the Swiss franc is one of the few world currencies that still is partly backed by gold.
  • SNB monetary policy – Swiss monetary policy changes could have an effect on the standing of the CHF as a carry trade funding currency.

EUR/JPY

If, for example, you believe that the Japanese banking crisis will continue to get worse, you would click BUY expecting the Euro to rise against the yen. If for example you believe that Europe is going into recession, thus weakening the Euro, you would click SELL, expecting the Euro to drop in value against the yen.

  • European and Japanese economic data – This pair often integrates fundamental economic information better than the majors
  • Bank of Japan intervention – The BOJ prevents the Yen from becoming too strong against the dollar. If there is intervention in the USD/JPY, it will create movement for EUR/JPY too.
  • Oil prices – Japan is very dependent on exported oil, so a spike in oil prices can cause a marked dip in the Yen.
  • Talk of Japanese reserve diversification – The Bank of Japan holds dollar reserves. If reserves are diversified into euros, EUR/JPY could explode as new demand for the Euro drives the price up.

GBP/JPY

If, for example, you believe that the Bank of England is going to raise interest rates, you would click BUY, expecting the British pound to increase against the yen due to interest rate arbitrage. If you think the Nikkei index will rise at a higher rate than the FTSE, thus buoying the yen, you would click on SELL, expecting the yen to increase against the British pound.

  • Shifts in UK interest rate outlook – Since this pair is saturated with carry trades, it is hypersensitive to any potential change in interest rates
  • Bank of Japan intervention – Hints that the BOJ will defend their currency from getting too strong will impact the price.
  • UK and Japanese economic data – Changes in the strength of these economies relative to each other will have an effect on the price of their currency.

GBP/CHF

If, for example, you believe that the Bank of England is going to raise interest rates, you would click BUY, expecting the British pound to increase against the CHF due to interest rate arbitrage. If you believe the British are about to commit themselves to adopting the Euro, you would click SELL, expecting the pound to weaken against the CHF as the British devalue their currency in anticipation of merging with the Euro.

  • Comments from the Bank of England – Since GBP/CHF is a very popular carry trade, changes in the interest rate outlook can significantly affect the value.
  • UK inflation data – The Bank of England tightens interest to control inflation, so the market watches inflation data to anticipate upcoming changes.
  • UK growth – Growth in the UK is carefully monitored for any signs of a downturn or upturn. Growth can affect inflation, which in turn can affect interest rates.

AUD/JPY

If, for example, you think that the Australian economy is going to grow while the Japanese economy goes into recession, you would click BUY, expecting the AUD to strengthen against the yen. If you believe the Australian economy will go into recession due to falling commodity prices, you would click SELL, expecting the yen to rise against the AUD.

  • Gold Prices – Since Australia exports gold, the value of the AUD is correlated with the price of gold
  • Oil Prices – The Japanese economy is very dependant on imported oil, so changes in the price of oil can affect the value of the Yen.
  • Australian Economic data – AUD/JPY is very sensitive to Australian fundamental data.
  • Royal Bank of Australia and Bank of Japan Monetary Policy changes – Since the AUD/JPY is a hot carry trade, changes in the interest rate outlook can cause sharp movements in the pair

EUR/CHF

If, for example, you think the Swiss government wishes to devalue the currency to help exports in Europe, you would click BUY, expecting the Euro to increase in value against the Swiss franc. If inflation started taking off in Germany and France, you would click SELL expecting the Swiss franc to increase in value against a devalued Euro.

AUD/USD

If, for example, you think that commodity prices are going to rise dramatically, thus benefiting the AUD, you would click BUY, expecting the aussie to strengthen against the U.S. dollar due to Australia being a leading exporter of many commodities. If you believe that Australia is heading into recession, you would click SELL, expecting the U.S. dollar to strengthen against the AUD.

USD/CAD

If, for example, you think that the U.S. economy is going to rebound while the Canadian economy goes into recession, you would click BUY, expecting the U.S. dollar to strengthen against the Canadian dollar. If you believe the Canadian dollar is fundamentally undervalued and will strengthen against the U.S. dollar, you would click SELL, expecting the CAD to rise against the U.S. dollar.

NZD/USD

If, for example, you think the success of Lord of the Rings will cause tourists to flock to New Zealand and pump money into the local economy, you would click BUY, expecting the NZD to strengthen in value against the U.S. dollar. If you expect the AUD is going to fall along with commodity prices, you would click SELL expecting the NZD to drop in value against the U.S. dollar.

EUR/GBP

If, for example, you believe the British are about to commit themselves to adopting the Euro, you would click BUY, expecting the pound to weaken against the Euro as the British devalue their currency in anticipation of the merger. If you believe that Great Britain’s economy will grow at a faster rate than Europe’s, you would click SELL, expecting the British pound to rise in value against the Euro.

CHF/JPY

If, for example, you believe conflict in the Middle East may cause a spike in oil prices, you would click BUY, expecting the CHF to increase against the yen due to Japan’s reliance on imported oil and the CHF’s safe-haven status. If you believe there will be more stability in the region, you would click SELL, expecting the yen to rise against the CHF.

EUR/AUD

If, for example, you believe that Australia is heading into recession, you would click BUY, expecting the Euro to strengthen against the AUD. If you think that commodity prices are going to rise dramatically, you would click SELL, expecting the aussie to strengthen against the Euro due to Australia being a leading exporter of many commodities.

EUR/CAD

If, for example, you think that the German economy is going to rebound while the Canadian economy goes into recession, you would click BUY, expecting the Euro to strengthen against the Canadian dollar. If you believe the German economy will go into recession and drag the Euro down with it, you would click SELL, expecting the Canadian dollar to rise against the Euro.

AUD/CAD

If, for example, you think that the Australian economy is going to grow while the Canadian economy goes into recession, you would click BUY, expecting the AUD to strengthen against the Canadian dollar. If you believe the Australian economy will go into recession, you would click SELL expecting the Canadian dollar to rise against the AUD.

NZD/JPY

If, for example, you think that SARS and the situation in North Korea will cause Asian tourism and exports to fall, you would click BUY, expecting the yen to decrease in value over the NZD. If you believe that the factors that pushed the New Zealand economy up in 2002 are no longer in play, you would click SELL, expecting the NZD to weaken against the yen.

CAD/JPY

If, for example, you believe that the weakened U.S. dollar will cause Canadian exports to suffer, you would click SELL, expecting the yen to increase in value over the CAD. If you think the Japanese economy will remain weak due to lack of economic structural reform, you would click BUY, expecting the CAD to rise against the yen.

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