Understand currency pair trading

4.2.6 · Stock-Market › What to Trade

Currency Pair Kya Hota Hai?

Anatomy: BASE/QUOTE

Chalte hain pehle principles se price ka matlab samjhte hain:

EUR/USD = 1.2000

Is number ka kya matlab hai?

• Tumhe 1 EUR kharidne ke liye 1.2000 USD chahiye
• Agar tumhare paas 1 EUR hai, tum usse 1.2000 USD se exchange kar sakte ho

YEH format KYU? Kyunki hum base currency (EUR) ko quote currency (USD) ke terms mein express kar rahe hain. Number tumhe batata hai: "Quote currency ki kitni units ki keemat hoti hai 1 unit base currency ke liye?"

Scratch se derivation:

1. Definition se shuru karo: $P=\frac{\text{Quote units}}{\text{Base units}}$
2. Dono sides ko Base units se multiply karo: $P\times \text{Base units}=\text{Quote units}$
3. Isliye: Agar tum $B$ units base currency trade karte ho, tum $B\times P$ units quote currency exchange karte ho

YEH KYU matter karta hai? Yahi formula tumhara profit/loss decide karta hai. Agar tum EUR/USD 1.2000 par kharidtey ho aur 1.2100 par bechte ho, tumne 0.0100 USD per EUR trade kiya hua kamaya.

Major vs Cross vs Exotic Pairs

Categorize KYU karein? Liquidity aur spread costs mein bahut zyada farq hota hai. Major pairs ke tight spreads hote hain (1-2 pips), exotics 20-50 pips tak ho sakte hain.

Direct vs Indirect Quotes

KAISE yaad rakhein: Agar tumhari home currency quote (second) hai, toh yeh direct hai. Agar tumhari home currency base (first) hai, toh yeh indirect hai.

Indirect (USD base hai):

• USD/JPY = 110.00 → "Mere $1 se mujhe ¥110 milte hain"
• USD/CHF = 0.9200 → "Mere $1 se mujhe 0.92 CHF milte hain"

Trading mein YEH KYU matter karta hai:

• Direct quotes mein: Price↑ matlab foreign currency USD ke against strong ho rahi hai
• Indirect quotes mein: Price↑ matlab USD foreign currency ke against strong ho raha hai

Bid, Ask, aur Spread

Spread cost ki derivation:

Maan lo EUR/USD quotes hai: Bid 1.2000 / Ask 1.2002

Agar tum:

1. 1 EUR Ask par kharidtey ho = 1.2002 USD kharch
2. Turant 1 EUR Bid par bechte ho = 1.2000 USD prapt
3. Loss = 1.2002 - 1.2000 = 0.002 USD = 2 pips

Spread KYU exist karta hai? Market makers is difference se profit karte hain. Woh sellers se bid par kharidtey hain aur buyers ko ask par bechte hain, spread apni jeb mein rakh lete hain.

Spread tumhe KAISE affect karta hai: Break even ke liye tumhe spread overcome karna hoga. Tighter spreads = trading ki lower cost.

Yeh step KYU? Hum per-unit spread (0.0003) ko position size (10,000) se multiply karte hain dollar cost nikaalney ke liye.

1-pip spread ke liye: Cost hogi $1 per 10,000 units (isliye pip value matter karti hai!).

Cross Pair Pricing (Triangle Trade)

Toh: $\text{EUR/GBP}=\frac{A}{B}$

Pehle principles se derivation:

1. Jo hum jaante hain:

   • 1 EUR = $A$ USD (EUR/USD se)
   • 1 GBP = $B$ USD (GBP/USD se)

2. Jo hum jaanna chahte hain: 1 EUR mein kitne GBP lagte hain?

3. Method: USD ko bridge currency ke roop mein use karo:

   • 1 EUR → $A$ USD (EUR ko USD mein convert karo)
   • $A$ USD → $\frac{A}{B}$ GBP (USD ko GBP mein convert karo, is fact se ki $B$ USD = 1 GBP)

4. Isliye: $\text{EUR/GBP}=\frac{A}{B}$

YEH KYU kaam karta hai: Hum exchange rates ko chain kar rahe hain. USD mathematically cancel ho jaata hai.

EUR/GBP nikalo: $\text{EUR/GBP}=\frac{1.2000}{1.4000}=0.8571$

Interpretation: 1 EUR = 0.8571 GBP (EUR, GBP se weaker hai)

Logic se verification:

• 1 EUR = 1.20 USD
• 1 GBP = 1.40 USD
• GBP USD terms mein "zyada valuable" hai
• Toh 1 EUR ko 1 GBP se kam kharidna chahiye ✓
• Specifically: 1 EUR, 1.20/1.40 = 0.857 GBP kharidta hai ✓

Arbitrage isse sach KYU rakhta hai? Agar EUR/GBP calculated cross rate se alag quote kare, toh traders:

1. Underpriced pair kharidenge
2. Overpriced pair bechenge
3. Risk-free profit pocket karenge
4. Yeh trading pressure prices ko wapas line mein laata hai

Pips aur Pip Value

YEH specific convention KYU? Yeh ek historical artifact hai jab forex percentage points mein move karta tha. Zyaadatar currencies ke liye, 0.0001 ek ~0.01% move represent karta hai (100 pips = parity par 1%).

Ruko—yeh formula complex lagta hai. Chalte hain isse derive karte hain:

Scenario: Tum 10,000 EUR/USD, 1.2000 par trade karte ho

Step-by-step derivation:

1. Base currency mein ek pip move kitna worth hai?

   • EUR/USD ke liye Pip size = 0.0001
   • Position = 10,000 EUR
   • 1-pip move pair ki value 0.0001 se change karta hai

2. Yeh kitni quote currency represent karta hai?

   • Change in quote = Position × Pip size
   • Change in quote = 10,000 × 0.0001 = 1 USD

Zyaadatar pairs ke liye YEH KYON simple hai? Jab quote currency USD ho (EUR/USD, GBP/USD), 10,000 unit position par 1 pip = $1. Saaf!

Lekin indirect quotes ke liye (USD/JPY):

Agar USD/JPY = 110.00 hai, tum 10,000 USD trade karte ho:

• 1 pip = 0.01 JPY
• Change = 10,000 × 0.01 = 100 JPY
• USD mein Pip value = 100 / 110.00 = $0.909

Exchange rate se divide KYU karein? Humein JPY profit ko USD (hamari account currency) mein convert karna hota hai.

2. USD/JPY = 110.00, Position = 100,000 USD

• Pip size = 0.01
• Change = 100,000 × 0.01 = 1,000 JPY
• Pip value = 1,000 / 110.00 = $9.09 per pip

3. EUR/GBP = 0.8500, Position = 100,000 EUR

• Pip size = 0.0001
• Change = 100,000 × 0.0001 = 10 GBP
• Agar GBP/USD = 1.4000 ho: Pip value = 10 × 1.4000 = $14 per pip

Teesre example mein GBP/USD KYU chahiye? GBP profit ko USD account currency mein convert karne ke liye!

Pairs Actually Kaise Move Karte Hain: Correlation

Correlation types:

• Positive correlation: EUR/USD aur GBP/USD saath chalte hain (dono USD quote karte hain, USD strength/weakness par react karte hain)
• Negative correlation: EUR/USD aur USD/CHF opposite direction mein chalte hain (USD alag sides par hai)

YEH KYU matter karta hai: Agar tum EUR/USD par long ho aur GBP/USD par bhi long ho, tum asal mein sirf "anti-USD" par do baar bet laga rahe ho—diversified nahi!

Mistake 1: "EUR/USD upar gaya, toh dollar strong hua"

Yeh sahi KYU lagta hai: Price upar jaana = achha, dollar ka naam hai, matlab dollar achha hoga!

Fix: EUR/USD mein, EUR base hai, USD quote hai. Price upar = EUR strong hua (EUR per zyaada USD chahiye). USD weak hua.

Mistake ko steel-man karo: Confusion USD ke naam mein hone se aata hai. Yaad rakho: BASE jeetता hai jab price badhti hai, quote jeetती hai jab price girती hai.

Mistake 2: "Main bigger moves ke liye exotic pairs trade karunga"

Yeh sahi KYU lagta hai: Zyaada volatility = zyaada profit potential!

Fix: Haan, zyaada volatility, lekin saath mein:

• Bahut wide spreads (50 pips vs 1 pip ho sakta hai)
• Lower liquidity (desired price par exit karna mushkil)
• Manipulation aur sudden gaps ka zyaada risk

Real calculation:

• EUR/USD: 50 pip move, 1 pip spread = 49 pips net
• USD/TRY: 100 pip move, 30 spread = 70 pips net
• Behtar lagta hai, LEKIN: Turkish central bank announcement par 500-pip overnight gap ka risk!

Mistake 3: "Pip value hamesha $10 per lot hoti hai"

Yeh sahi KYU lagta hai: Kai brokers simplicity ke liye "$10 per pip per standard lot" advertise karte hain.

Fix: Yeh sirf tab sach hai jab USD quote currency ho (EUR/USD, GBP/USD). USD/JPY, GBP/JPY, EUR/GBP ke liye, pip values differ karti hain aur exchange rates ke badhne-ghatne par change bhi hoti hain!

KAISE bachein: Hamesha apne specific pair ki pip value current price par calculate karo, ya apne broker ka position calculator check karo.

Mistake 4: "Forex mein main apni position se zyaada lose nahi kar sakta"

Yeh sahi KYU lagta hai: Stocks mein, maximum loss 100% hota hai (stock zero ho jaata hai).

Fix: Forex leveraged hota hai aur do currencies involve hoti hain. Agar EUR/CHF suddenly 30% move kare (2015 mein hua tha jab Swiss National Bank ne peg hataya), aur tum 50:1 leverage par ho, tum apne initial margin se bahut zyaada lose kar sakte ho.

Steel-man: Confusion forex ko stock kharidne ki tarah sochne se aata hai. Actually, tum ek currency borrow karke doosri kharid rahe ho, jo gains AUR losses dono ko amplify karta hai.

Trader kehta hai: "Gold/Silver 1.5 hai." Matlab 1 Gold Coin = 1.5 Silver Coins. Toh tumhare 100 Gold = 150 Silver.

Ab, price kyun change hogi? Shayad sab log suddenly Gold chahte hain kyunki rumor failti hai ki Gold ek secret level unlock karta hai. Ab trader kehta hai "Gold/Silver is 2.0"—Gold strong ho gaya! Tumhare 100 Gold ab = 200 Silver!

Yahi currency trading hai: bet lagaana ki Gold, Silver ke against strong hoga ya weak. Tum hamesha do cheezein compare kar rahe ho, kabhi sirf "Gold kharidna" nahi.

Spread: Trader thoda clever hai. Agar tum Gold KHARIDNA chahte ho, woh tumse 2.0 Silver per Gold leta hai. Lekin agar tum Gold BECHNA chahte ho, woh tumhe sirf 1.98 Silver per Gold deta hai. Woh 0.02 ka difference apne paas rakhta hai. Yahi uska profit hai—the spread!

Pairs kyun groups mein saath chalte hain: Agar Gold strong hota hai, toh woh aam taur par Silver AUR Bronze dono ke against strong hota hai. Toh agar tum Gold/Silver aur Gold/Bronze dono kharidtey ho, tum really sirf Gold par do baar bet laga rahe ho!

"Ask = Acquire" → Ask woh jagah hai jahan tum base currency acquire (buy) karne ke liye poochhtey ho.

Direct vs indirect ke liye: "Direct = Dollar Denominated" → Agar tumhari home currency (Americans ke liye USD) quote (second position) mein hai, toh yeh direct hai—directly tumhare dollars mein!

Connections

• 4.2.01-Stock-basics - Stock pricing ki tarah, lekin forex mein koi "underlying company" nahi hoti
• 4.2.04-Understand-derivatives - Currency futures aur options forex pairs par derivatives hain
• 4.3.02-Technical-analysis-basics - Chart patterns currency pairs par kaam karte hain, lekin fundamentals alag hote hain
• 4.4.01-Risk-management - Forex mein leverage ke liye strict position sizing zaroori hai
• 5.1.03-Market-liquidity - Forex globally sabse zyaada liquid market hai ($7T daily volume)
• 4.2.07-Understand-commodities - Commodity currencies (AUD, CAD, NZD) commodity prices se correlate karti hain

#flashcards/stock-market

Currency pair quote ke teen components kya hote hain? :: Base currency (pehla), quote currency (doosra), aur exchange rate (price)

Agar EUR/USD = 1.2000 ho, toh is price ka kya matlab hai? :: 1 EUR kharidne ki cost 1.2000 USD hai, ya 1 EUR bechne par 1.2000 USD milte hain

10,000 EUR/USD ke liye pip value kya hai? :: $1 per pip (zyaadatar USD-quoted pairs ke liye: position size × 0.0001)

Concept Map