Forex trading is one sort of trading which is carried out in pairs. You cannot afford to usher into this kind of trade with just one type of currency. The rise of a particular kind of currency against other results in earning money and minting money, you have to make sure that you make the correct call properly and without any error. There are several pairs of currency and lots and lots of liquid derivatives of these currency pairs as well. The idea of this is to correctly read which currency is trading at or proximal to area where it is perfectly stable. This is one method through which we can go ahead and find out if the currency will rise out against any other currency or not.
Currency trading pair can be any- USD/EUR, GBP/NZD, USD/JPY and many others. When you are trading in any currency, you will have to cash on the demand and supply friction of the trading pair. GBP/USD is one pair which facilitates this. Let us study an example of its trading.
Let us assume that there are particular news factors which mean that British Pound is quite near its stability zone as well as the country’s economic portfolio demands its rise, so then you can select to purchase US dollars with it. If the dollar weakens with respect to the pound, you can easily sell off the position and earn a profit. In this case, you will have to choose the GBP as the base currency which is actually offered in one unit and USD as the counter currency.
In this particular case, 1 GBP will be needed to purchase about 1.6 USD. The trading is done in the units of 1, 00,000 units. Hence, with 1, 00,000 GBP you can go ahead and purchase 1, 60,000 EUR. You actually ‘bid’ and even ‘ask’ for purchasing as well as for selling a particular currency. If you can foretell reversals on a later date, then the option of hedging is always present. The pair which is given here is actually quite solid and can stand high market volatility.