How are currencies traded?
They are traded in pairs. Why? Because a currency can be strong vs. one currency but weak vs. another. Remember that currency values are the collective sentiment of investors around the world.
So if investors feel good about the U.K. economy and worse about the U.S. economy, then the British pound (GBP) will gain in strength to the U.S. dollar (USD). However, at the same time, investors could still feel better about the U.S. economy than that of Japan. If so, the USD would go up against the JPY (Japanese yen). So as you can see, it’s all relative to what it’s being compared to. In the first instance, the U.S. dollar is viewed as being weak (in comparison to the pound). In the second example the “buck” was viewed as being strong vs. the yen.
So these currencies are traded in the interbank market through these forex market makers. The market makers set the quotes based off of the buying and selling pressures that they see due to the demand for a currency vs. another.
Currencies trade in the spot forex market as OTC (over the counter). That simply means that they do not trade on a certain designated exchange around the world. An example that you might be more familiar with is the NYSE and the NASDAQ. The NYSE is an actual exchange that has a physical location where stocks are traded. The NASDAQ, on the other hand, is an OTC market where there is no physical place that you would see these traded. They are just two different ways that stocks are traded.
Generally, if you see a stock traded that has a 4 letter symbol, it’s traded on the NASDAQ. However, if it’s 3 letters or less, then it’s traded on an exchange such as the NYSE.
An advantage of an OTC market is that market makers have to compete for your business more than a specialist would have to on a physical exchange. Therefore, this ends up working in the actual trader’s favor
They are traded in pairs. Why? Because a currency can be strong vs. one currency but weak vs. another. Remember that currency values are the collective sentiment of investors around the world.
So if investors feel good about the U.K. economy and worse about the U.S. economy, then the British pound (GBP) will gain in strength to the U.S. dollar (USD). However, at the same time, investors could still feel better about the U.S. economy than that of Japan. If so, the USD would go up against the JPY (Japanese yen). So as you can see, it’s all relative to what it’s being compared to. In the first instance, the U.S. dollar is viewed as being weak (in comparison to the pound). In the second example the “buck” was viewed as being strong vs. the yen.
So these currencies are traded in the interbank market through these forex market makers. The market makers set the quotes based off of the buying and selling pressures that they see due to the demand for a currency vs. another.
Currencies trade in the spot forex market as OTC (over the counter). That simply means that they do not trade on a certain designated exchange around the world. An example that you might be more familiar with is the NYSE and the NASDAQ. The NYSE is an actual exchange that has a physical location where stocks are traded. The NASDAQ, on the other hand, is an OTC market where there is no physical place that you would see these traded. They are just two different ways that stocks are traded.
Generally, if you see a stock traded that has a 4 letter symbol, it’s traded on the NASDAQ. However, if it’s 3 letters or less, then it’s traded on an exchange such as the NYSE.
An advantage of an OTC market is that market makers have to compete for your business more than a specialist would have to on a physical exchange. Therefore, this ends up working in the actual trader’s favor
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