Let’s delve into more on currency pairs.
In this example, the pound is the base currency and thus the “basis” for the buy/sell.
If you think the British economy will continue to do better than the U.S. in terms of economic growth, you would execute a BUY GBP/USD order.
By doing so you have bought pounds with the expectation that it will rise versus the U.S. dollar.
If you believe the British economy is slowing while the American economy remains strong, you would execute a SELL GBP/USD order.
By doing so you have sold pounds with the expectation that it will depreciate against the U.S. dollar.
In this example, the U.S. dollar is the base currency and thus the “basis” for the buy/sell.
If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order.
By doing so you have bought U.S. dollars in the expectation that it will appreciate versus the Swiss Franc.
If you believe that the U.S. housing market weakness will hurt future economic growth, which will weaken the dollar, you would execute a SELL USD/CHF order.
By doing so, you have sold U.S. dollars with the expectation that it will depreciate against the Swiss franc.
When you go to the grocery store and want to buy an egg, you can’t just buy a single egg, they come in dozens or “lots” of 12.
In forex, it would be just as foolish to buy or sell 1 euro, so they usually come in “lots” of 1,000 units of currency (micro lot), 10,000 units (mini lot), or 100,000 units (standard lot) depending on your broker and the type of account you have (more on “lots” later).
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