Page 29 - Ultimate Guide to Currency Trading

relative terms to the U.S. dollar. This dollar pricing opens the way to beginning to think of Oil/USD and
Silver/USD as currency pairs with all of the fundamentals, supply, and technical indicators of other FX
pairs including Gold/USD.

Silver, on the other hand, acts like gold with its reaction to inflationary indicators, and
relatively constant supply (although the supply of silver is much more elastic than gold). The spot silver
market is much smaller than the spot gold market; this often leads to more volatile and dramatic price
movements throughout the trading day. It is not unusual for gold to move 0.75 percent to 1 percent
per day, while silver moves 3 percent to 5 percent per day. As with gold, some Forex brokers allow
spot silver (Silver/USD) trading with 10:1, 20:1, or even 50:1 leverage.

Gold, silver, and oil are traded in dollars; this is why they can be considered currencies.
The same might also be said of other widely traded financial products that are
denominated and block traded in USD. The S&P 500 Index comes to mind as a kind of
currency of the U.S. stock market.

In addition to the high leverage, the minimum order with Silver/USD is usually 5,000 ounces.
This combination of high percentage movement, high leverage, and large lot size can lead to huge
gains in your account if the conditions are right. It is possible to have a large percentage of your FX
account in silver, and after a strong run in silver's price, triple the overall value of your FX account
when your silver positions are closed out. This can hap-pen in a matter of a few weeks (most likely in
the winter months during the Indian wedding season and the Chinese New Year, or an overly active
upward swing in the gold market). Silver prices follow gold prices, and trading spot Silver/USD is often
recommended by advisors as a form of a return enhancement for spot Gold/USD traders.

The Oil/USD Pair

Although Silver/USD is much more akin to Gold/USD and other currency pairs, Oil/USD is less
so. If you allow the thought that Oil/USD is a currency pair, then you would analyze it the same way as
others. You would look for economic factors, geopolitical tensions, and technical indicators much like
Gold/USD. The one difference is that while the supply of gold remains relatively constant as the supply
of USD moves up and down, the supply of oil often moves up and down with changes in the
Organization of the Petroleum Exporting Countries (OPEC) quotas. Other factors are sudden changes
in weather, such as when severe hurricanes and tornadoes affect the areas where oil is drilled for or
refined. Oil/USD does have some predictability in its direction, though. The summer months in North
America usually mean increased vacation and holiday driving, often leading to a run-up in the barrel
price of oil.

Trading currencies means trading the relative value of each element of a FX pair. These FX
pairs consist of the traditional paper-based currencies of the world. FX pairs can also consist of other