Simultaneous buying and selling

One of the most difficult things mentally for new investors in the currency market is the idea of simultaneously buying and selling. In the stock market, when you buy something, you then own it until you sell it. However, in the currency market, buying one currency means selling another.

Simultaneous buying and trading can be looked at as the mental hurdle for new investors to currencies.However, it is a mental hurdle that needs to be overcome if you are going to be successful in the foreign currency exchange market. The market will be impossible to understand and trade in if you can't wrap your head around this idea. So tighten up your laces, and give yourself a good leap into the idea that you are buying and selling at the same time each time you make a trade within the forex market.

An exchange in foreign exchange has to be made. Every trade is a simultaneous purchase and sale. When you purchase one currency it simultaneously involves the sale of another currency. This is where the "exchange" in the name comes from. Thus, when you are trading in the forex market, you are looking for one currency to being higher. Higher against what? If you are waiting for a currency to go higher, the question is "Higher against what?" The answer is simple, another currency. It seems straightforward enough, if the dollar goes up against another currency, that other currency also has gone down against the dollar. However, it can be confusing to investors who are used to dealing with only one asset or entity. If it helps, think of the stock market as exchange a stock for cash, or cash for a stock. Then insert currency #1 into the first place, and currency #2 into the other place, and the idea should be a lot clearer.

Because the market involves simultaneously buying and selling currency, it makes sense that currency comes in pairs. You can't buy one currency without selling another, and that two together make a pair. Most of the major currency pairs involve the US dollar, or USD as it is known in the forex market. However, some do not, these are called crosses, and they typically involve one of the following currencies: EUR, JPY, or GBP. The combinations of these three are the most actively traded cross currency pairs.

Part of the mechanics of trading in the currency market is understanding pairs. The best way to do that is to practice, and get a feel for the biggest differences between the forex market and other financial markets across the globe. Otherwise, you will find yourself struggling to keep your head above water. The nice thing is that once you have the terminology down, and a good grasp on simultaneous buying and selling, the rest of currency trade conventions are fairly straightforward, making it easier to understand this vast market of global commerce.