The USD / JPY currency pair is one of the heavyweights in FX trading: Both Japan and the USA are large economies with considerable weight on the world markets. Both currencies are also considered to be "safe havens" and are mainly headed for in times of crisis, even though Japan in particular has an unprecedented level of sovereign debt worldwide.
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USD / JPY Trade Forex - This is how it works!
US dollars and yen have long been the classic " Carry-Trade " currencies, whereby the sometimes large interest rate differential between Japan and the The US used to borrow cheaply in the low-interest country and invest the capital accordingly in the high-yield country.
Market participants who have a long position in the USD JPY are betting on an appreciation of the US dollar against the Japanese yen. Similarly, investors who trade a short position in the US dollar Japanese yen expect the greenback to depreciate. The exchange rate is influenced by a large number of different variables, including monetary and fiscal policy, the global economy and market conditions.
These characteristics characterize the currency pair USD / JPY:
- Very high liquidity
- Right Forex-Major pair
- Short-term increases between 20-40 pip are possible
- Is characterized by average low spreads
- The USD / JPY development usually affects Trade Forex worldwide from
USD / JPY: Process of a currency transaction
If you open a long position in USD / JPY, you buy USD and sell yen. In practice, just one click is required to trade US dollar Japanese yen with Forex. However, this transaction can be broken down into several steps to better understand the background and functionality of a currency transaction. In the first step, the investor takes out a loan in yen. He then exchanges the liquidity thus provided for USD.
With this second step, the position is opened: It ultimately consists of a credit account denominated in yen and an investment account denominated in USD. If the investor is correct in his assessment of the market (the USD appreciates), he can close the USD investment account and repay the JPY loan to close the position. Due to the appreciation of the USD, the entire USD liquidity does not have to be used for the repayment - the difference corresponds to the profit from the position.
Trading in USD / JPY is done by opening a JPY credit account and a EUR investment account. At the end of trading, if the USD has risen, the JPY credit account will be balanced using the EUR investment account. The profit results from the difference between the amount in the EUR investment account and the amount in the JPY credit account.
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USD / JPY exchange rate in quantity and price quotation
As for any other currency pair, the US dollar Japanese yen exchange rate is given in both quantity and price quotation. The first currency mentioned is always the base currency - the USD for JPY / JPY. The quantity listing specifies how many units JPY will be paid for USD 1.00 (base currency). The price quotation indicates how many units USD (base currency) are paid on the market for 1.00 JPY. The price quotation is the reciprocal of the quantity quotation.
The terms quantity quotation and price quotation are used for exchange rates. On average, quantity listing is used more frequently.
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The advantages of this currency pair
USA and Japan combined represent 30% of global GDP. For this reason, both the US dollar, the Japanese yen, and the pair, play an important role. If there are changes in the exchange rate of the US dollar or Japanese yen, these do not only affect currency pairs with USD or JPY participation. The past shows that both USD and JPY can be traded as safe haven currencies from time to time. Characteristics such as sideways movements encourage even beginners to invest in the currency pair. For sideways movements the Forex strategy contra-trend is recommended when trading binary options.
Trading with the currency pair USD / JPY is also described as trading with the gopher. Due to the trade links, the price developments of USD / JPY also affect all other major exchange rate pairs. If you are not yet USD / JPY trading Forex , you should track the currency pair in order to draw conclusions for trading with other currency pairs.
Currency pairs, too trading in JPY, such as GBP / JPY, EUR / JPY or AUD / JPY, will be affected by developments in the USD / JPY pair. Therefore, USD / JPY is used not only for trading but also for trading decisions in connection with other currencies. For traders who prefer to trade with AUD, the Japanese yen and the currency pair USD / JPY are relevant for decision-making.
Due to the global, economic importance of the currency pair USD / JPY, trading with it is high -volatile currency pair its advantages. The USD / JPY pair also serves as a possible decision-making aid when trading currency pairs with USD or JPY participation.
Negative and positive correlation
correlations support a better trading decision. They include the price developments of the past months or a year and are differentiated into positive and negative correlations. If the correlation is positive, trading is recommended. If the correlation is negative, is advised against trading. Due to the exchange rate fluctuations in the USD / JPY currency pair, the use of an hourly updated correlation table is recommended. The better the correlation calculation, the lower the trading risk.
In relation to the currency pair, the correlation also describes the effect of the exchange rates on each other. USD / JPY tends to be in a negative correlation. This means that if the US dollar appreciates, the Japanese yen will fall.
If the US dollar falls, the Japanese yen will rise. Since the US dollar is the base currency in the currency pair and the Japanese yen is the counter currency, the USD / JPY currency pair will fall overall the trading decision with the currency pair. In addition, correlation calculations of one currency pair are used for decision-making aids when trading with another currency pair, such as when trading with EUR / USD, EUR / JPY or USD / CAD.
USD / JPY are also popular in the form of binary options traded. Here too, correlations can be used as a strategy (correlation binary options).
Correlation calculations can already be studied by beginners and used with increasing trading experience. Correlations applied to the trade with a currency pair can minimize the trading risk. When trading multiple currency pairs and using correlation calculations, however, the risk can increase.
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Forex strategies for trading USD / JPY
The best trading time for USD / JPY is at the end of the American session and before the start of the Japanese session. As the Japanese session trades in smaller markets compared to the USA, the trading volume of the USD / JPY is primarily within the American session. There is no overlap between the two sessions. The New York Session opens at 1 p.m. and closes at 10 p.m. GMT. Depending on the time difference, the Tokyo session opens one to two hours later from 0:00 to 9:00 GMT. Despite the high impact of Japanese trading, the USD / JPY trading volume in the New York session is significantly higher.
For risk-averse traders, the trend-following strategy and the contra-trend strategy offer themselves as a forex strategy. When choosing the Forex strategy and the amount of the change, the main influences on the currency pair should be checked. The main influences include the key interest rates. These are issued by the Banc of Japan and the Fed, Federal Reserve Banc.
Another trading strategy can be found in the high / low option.
Conclusion: Two global players on the international stock exchange markets
The high volatility of both currencies ensures a very high overall volatility of the currency pair USD / JPY. In direct comparison to the other forex major pairs, USD / JPY is traded in second place. USD / JPY can be characterized by the frequent occurrence of sideways movements. The trend following strategy and the contra-trend strategy are particularly suitable for beginners.
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