One of the most common difficulties for new FOREX traders is understanding the pricing mechanism of currency pairs. But, without knowing how these operate the calculations necessary to FOREX trading are impossible.

We are used to thinking of prices as ‘fixed’ in our own national currency. For example, if I go to the store and see something priced at $9.50 it means it is nine-and-one-half dollars. We automatically ‘fix’ the dollar value in our minds and everything is related to that value.

Not so in currency. Pairs are ‘relational’ meaning the price of one currency is relative to the price of the other currency in that pair. This is where we see difficulty since the ‘fixed’ idea we have integrated for our daily lives is no longer valid.

The other problem is dealing with decimals. Many of us slept or hid under our desks when fractions and decimals were taught to us in school! If you need a brief refresher, this is excellent: http://www.mathsisfun.com/decimal-fraction-percentage.html 

I’ve found the best way is to interpret currency pair prices is like this: ‘ONE UNIT of the front [first listed in a pair] currency is this [the quoted price] number of units of the back [second listed in a pair] currency.

Consider this quote of the EURUSD:    1.2995

This simply says ‘One EUR will buy (is worth) 1.2995 USD.’ If the number is less than ’1′ then it is worth less than a full unit; over ’1′ and it is worth more than a full unit.

Let’s suppose the quote convention was USDEUR, instead. The front currency would still tell us how many Units of the back currency ONE UNIT of the first would buy or is worth. We can obtain this value by division, 1.0000/1.2995 = .76952.  So EURUSD 1.2995 is the same as USDEUR .76952. In the latter hypothetical example we see ONE UNIT of USD buys/is worth approximately 3/4 of a EUR. In the former that ONE UNIT of EUR buys/is worth close to 1 1/3 of a USD.

Again, the above referenced tutorial link may be useful if its been a long time since you worked with decimals and fractions. :)

TIP 1-1: When you see the price of a currency pair rising that means the value of the front currency is going UP and the value of the back currency is going DOWN. When you see the price of the currency pair falling that means the value of the front currency is going DOWN and the value of the back currency is going UP.

TIP 1-2: You BUY the pair if either 1) You expect the value of the front currency to go UP or 2) You expect the value of the back currency to go DOWN. You SELL the pair if either 1) You expect the value of the front currency to go DOWN or 2) You expect the value of the back currency to go UP.

EXERCISE #1 

What do each of the following mean? Write out the answers.

USDCAD 1.0002

AUDNZD 1.2787

CHFJPY  85.93

GBPUSD 1.6065

I want to make money if the price of the CAD rises. Would I BUY or SELL this pair?

I want to make money of the price of the AUD rises. Would I BUY or SELL this pair?

I want to make money of the price of the JPY falls. Would I BUY or SELL this pair?

I want to make money if the price of the GBP falls. Would I BUY or SELL this pair?

I will answer all reasonable inquires to the best of my ability. Please keep each post to a single topic, be as specific as possible.

If you do not wish your inquiry to be public, feel free to send it to me via email.

Response time is typically 48 hours +/-.

Good Trading!

Duane Archer

Most FX traders today use multiple monitors. I use x3 30″ screens, I know traders who use up to x8 24″ screens.

Perhaps the single biggest fault with the MetaTrader 4 platform – you cannot unhook charts from the chart Window. Yes, you can stretch MT4 across multiple screens – but it isn’t pretty. Paul Nordin of www.floatingcharts.com has written an excellent program in C++ which allows any/all MT4 charts to be unhooked, arranged ‘as you like them’ across multiple monitors.

Once installed you get extra options on the MT4 toolbar to float/unfloat a single chart or all charts. From there, you can arrange them across your monitor setup. When you exit and return you’ll also find all your charts just where you placed them. Neat!

It did take me a few days to get the hang of things; except for a couple of vid clips, the documentation is a bit weak, IMHO. But now, I would not be without FloatingCharts. I use it in connection with the GoodmanWorks NextChart program and have the best of all possible worlds for tracking multiple pairs and multiple time frames.

You can download a Demo at www.floatingcharts.com. Support is also excellent. Tell them GoodmanWorks sent you!

I’ll be reviewing some of the other, newer MT4 add-ons soon, including a program which allows you to program in Java and port to MT4.

Good Trading!

If you wish your inquiry to be private, email to me instead of blogging.

Please note that Questions from any others will neither be approved nor posted.

I will be adding a number of new files soon.