mechanics of a forex trade

mechanics of a forex trade

The currencies are traded against each other in one simultaneous transaction. For instance, you may believe that the EUR will strengthen versus the USD over the next few days. You might place an order to Buy 1 EUR/USD.

Buying one EUR/USD leverages $100,000 worth of currency. To exit this trade you would Sell 1 EUR/USD and your trade would realize a loss, gain or break even depending on the currencies’ movements versus each other.

Now let’s presume that you believe that the JPY will strengthen against the USD. You might sell 1 USD/JPY which leverages $100,000 worth of currency.

Not that the most valuable currency is listed first in the trade first. In other words, you would not buy 1 JPY/USD to accomplish your speculation that the JPY will strengthen versus the USD. The first currency is referred to as the base currency and the latter is called the counter or quote currency.