If
you’ve traded stocks, you’re familiar with all the indices available such as
the Dow Jones Industrial Average (DJIA), NASDAQ Composite Index, Russell 2000,
S&P 500, Wilshire 5000, and the Nimbus 2001. Oh wait, the last one is
actually Harry Potter’s broomstick.
Well
if U.S. stocks have an index, the U.S. dollar can’t be outdone. For currency
traders like us, we have the U.S. Dollar Index (USDX).
The
U.S. Dollar Index consists of a geometric weighted average of a basket of
foreign currencies against the dollar.
Come
again?! Okay before you fall asleep on us after that super geeky definition,
let’s break it down.
It’s
very similar to how the stock indices work in that it provides a general
indication of the value of a basket of securities. Of course, the “securities”
we’re talking about here are other major world currencies.
The Basket
The
U.S. Dollar Index consists of six foreign currencies. They are the:
- Euro (EUR)
- Yen (JPY
- Cable (GBP)
- Loonie (CAD)
- Kronas (SEK)
- Francs (CHF)
Here’s
a trick question. If the index is made up of 6 currencies, how many countries
are included?
If you
answered “6”, you’re wrong. If you answered “20”, you’re a genius.
There
are 20 countries total, because there are 15 members of the European Union that
have adopted the euro as their sole currency, plus the other five countries
(Japan, Great Britain, Canada, Sweden, and Switzerland) and their accompanying
currencies.
It’s
obvious that 20 countries make up a small portion of the world but many other
currencies follow the U.S. Dollar index very closely. This makes the USDX a
pretty good tool for measuring the U.S. dollar’s global strength.
What is the U.S. Dollar Index?
If
you’ve traded stocks, you’re familiar with all the indices available such as
the Dow Jones Industrial Average (DJIA), NASDAQ Composite Index, Russell 2000,
S&P 500, Wilshire 5000, and the Nimbus 2001. Oh wait, the last one is
actually Harry Potter’s broomstick.
Well
if U.S. stocks have an index, the U.S. dollar can’t be outdone. For currency
traders like us, we have the U.S. Dollar Index (USDX).
The
U.S. Dollar Index consists of a geometric weighted average of a basket of
foreign currencies against the dollar.
Come
again?! Okay before you fall asleep on us after that super geeky definition,
let’s break it down.
It’s
very similar to how the stock indices work in that it provides a general
indication of the value of a basket of securities. Of course, the “securities”
we’re talking about here are other major world currencies.
The Basket
The
U.S. Dollar Index consists of six foreign currencies. They are the:
- Euro (EUR)
- Yen (JPY
- Cable (GBP)
- Loonie (CAD)
- Kronas (SEK)
- Francs (CHF)
Here’s
a trick question. If the index is made up of 6 currencies, how many countries
are included?
If you
answered “6”, you’re wrong. If you answered “20”, you’re a genius.
There
are 20 countries total, because there are 15 members of the European Union that
have adopted the euro as their sole currency, plus the other five countries
(Japan, Great Britain, Canada, Sweden, and Switzerland) and their accompanying
currencies.
It’s
obvious that 20 countries make up a small portion of the world but many other
currencies follow the U.S. Dollar index very closely. This makes the USDX a
pretty good tool for measuring the U.S. dollar’s global strength.
Are You Willing to Pay the Price?
HA!
Made you click!
If you
really thought there actually was a way for a lazy forex trader to get rich,
SHAME ON YOU!
No
such thing exists. The word "lazy" and "trader" is an
oxymoron. You have to be willing to pay the price to become a trader.
Which
brings us to our next lesson....
So,
you’ve gone through the School of Pipsology…five times, learned basic analysis
and money management techniques, and maybe even opened up a demo account and
started trading a plan you’ve created. (You do have a trading plan right?) Now
you can sit back and relax because it’s easy money from here on out, right?
Wrong!
You’ve
just taken the first step.
You’ve
only familiarized yourself with the very basic fundamentals of what it takes to
become a professional trader. Now it’s time to get on to the real work.
I’m
sure you’re now thinking, “There’s more to learn?!”
Well,
my friend, the learning never ends.
As
with any profession, whether you’re a doctor, lawyer, athlete, assassin, spy,
ninja, ultimate fighter, musician or any other occupation that requires a high
level of skill, you can never stop learning and practicing. Otherwise, your
skills will deteriorate and you’ll slowly forget what you’ve learned.
This
lesson will give you a peek into what it takes – education, time, money and
psychological stamina – to enter the most financially rewarding career on the
planet: a professional trader.