The Value of Education in Online Forex Trading.

Education is a rope that can carry us to greatness. It is one of the most important things in life, because without it, you can't contribute to the world or earn money, and do not have knowledge. Knowledge is power, so when you know what you can do, you can go that mile further. This article addresses that issue and tells how to find the importance of education and what is the worth of quality education in forex trading?

Let me spell out three scenarios:

Driving from Ojodu/Berger, Lagos, the first turning on the right has a ‘NO ENTRY’ sign for motorists. A good one by the transport management authority to educate the motorists and ensure an effective traffic control, I suppose, but in the middle of that sign is  the non-conspicuous time of ‘from 4pm.’ I wonder why that important time limit will be written in such a small size font. Then, what is the essence of that road education? Punitive?

I tuned my car radio and a programme in which an official of a forex brokerage company was reeling out the importance of education in forex trading was been aired. The PR man made notable points as he stressed the importance of education in forex as the very basic step. A good one! But in my mind, I disagree with their training structure. I do not see it taking traders to their desired goal. My doubt also stems from the fact that brokers and traders might somehow be strange bed fellows. I can authoritatively confirm that an account under that broker’s PAMM scheme for two years, which yielded nothing other than a 20 per cent shortfall in investment, was doubled in six weeks under my management. The client found it incomprehensible.

Thirdly, the craze for foreign education outside Nigeria calls for serious concern economically, especially when one thinks of its effect on capital flight. From the three examples above, the first shows an attempt to educate but still something is hidden. The second points to getting your education at the right place and probably not with a ‘rival’ and the last speaks of how people seek better knowledge if affordable to them.

In relation to this article, readers have to be informed that getting a proper education now in forex trading, which removes all fear of losses, teaches proper risk and profit management, technical and fundamental trading, good trading strategies, is all they should seek. The time frame to cover all of this cannot be in short seminars of a day or few days.

Forex trading involves investment, hence the need to guide your capital. Traders go into the market as speculators to make profit. This is the ultimate aim and if that fails, discouragement sets in. From my experience on feedback since writing here, I do not encourage those who seek materials on their own to trade in forex.

Irrespective of the cost, I recommend mentoring from an experienced trader. Some that called to find the cost of training, which at present is less than $500, complained that it was expensive and I advised them to try the Online Trading Academy in St. Albans, UK or the branch in the US.

Not taking them far again, I do even ask for their permit to recommend cheaper ones around. Some take it in a bad stride as if I am haughty. But the answer is that going into forex trading in which you expect to make money, if not a living, dictates that you should shun quack training for a quality one; but the choice is yours. I would not compromise standard. I wonder why someone investing close to a million naira if not more would shun good training because of a fee that is less than 10 per cent of his or her investment.

How To Use Candlestick To Identified Short/Sell Signal Forex Market.

This article is a continuation of last week’s article. Last week, if you can grab a copy of that article, we discussed long or buy formations. This week, the focus is the opposite of that. We shall also summarise five candlestick bearish patterns and their characteristics for a sell decision or to go short.

Hanging man

The hanging man has or is characterised by a small real body, long lower shadow and short or non-existent upper shadow. The length of the lower shadow must be at least twice that of the real body.

The hanging man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a hanging man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the yellow flag.

As with the hammer, a hanging man requires bearish confirmation before an action. Such confirmation can come as a gap down or long black candlestick on heavy volume.

Shooting star

The shooting star is a bearish reversal pattern that forms after an advance and in the star position, hence its name. A shooting star can mark a potential trend reversal or resistance level. The candlestick forms when prices gap higher on the open, advance during the session and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should relatively be long and at least two times the length of the body. Bearish confirmation is required after the shooting star and can take the form of a gap down or long black candlestick on heavy volume.

 Bearish engulfing

  

This requires an existing or previous uptrend or ascension. The last candle before the engulfing candle must be bullish. The engulfing candle must be bearish and must ‘swallow’ the previous bullish candle in a manner that the previous candle can completely fit into it. A bearish confirmation may be required. The formation of the pattern on a higher time frame will give more potent result.

Bearish piercing

This requires an existing or previous uptrend or ascension. The last candle before the piercing candle must be bullish. The piercing candle must shoot/pierce/cover the over or at least 50 per cent of the previous candle. The piercing candle must be bearish. The piercing candle must open higher than the close of the previous candle, then close below the midpoint of the body of it. A bearish confirmation may be required. The formation of this pattern on a higher time frame will give more potent result.

 Dark cloud cover

This requires an existing or previous uptrend or ascension. The last candle before the dark cloud candle must be bullish. The next candle opens at a new high then closes below the midpoint of the body of the previous bullish candle. The formation of this pattern on a higher time frame will give more potent result.

A combination of last week and this week summary on candlestick formation could narrow your search on winning or profitable candlestick formation strategy as you now have nine strategic formations to look out for on your trading style, time frame or periodicity.

Candlestick Long/Buy Formations

Online forex trading is simply about buying and selling. All technicalities and fundamentals about forex boil down to buying and selling of currency pairs to make gain. This article and subsequent ones shall focus on these two. The articles shall summarise trading in its simplest form. The way I have taken trading despite all its intricacies is that am either buying or selling to make gain and leave the rest. Going long means to buy in forex trading.

With these articles you can get the essence of forex trading and remove fear of what you see on your computer screen that looks complicated. This week’s article is on buy or going long signals with candlestick charting/formation as the basis of decision. In as much as new comers in forex will want to have an in-depth (which is good), on the long run it will be surprising that forex trading is simply about what am about to discuss. Success in forex trading is not measured by how many books you have read, nor how many courses you have attended, or by how many market tools in your arsenal but by that apt decision to buy and sell and ultimately make profit.

I will onwards from here give four candlestick patterns and their characteristics for a buy decision or to go long.

Hammer

As in the picture above hammer has or it’s characterised by a small real body (black or white), long lower shadow and short or non-existent upper shadow. The length of the lower shadow must be at least twice that of the real body. The hammer is a bullish reversal pattern that forms after a decline (meaning there must be an existing or previous downtrend). In addition to a potential trend reversal, hammers can mark bottoms or support levels. After a decline, hammers signal a bullish revival. The use of hammer also goes with periodicity. The formation of a hammer on a higher time frame will give more potent result.

Inverted hammer

The inverted hammer is the opposite of hammer as in the picture above. It has all the characteristics of a hammer but it is like a hammer turned upside down (inverted), hence instead of a long lower shadow, it has a long upper shadow. The Inverted Hammer forms after a decline or downtrend. Inverted hammers represent a potential trend reversal or support levels. After a decline, the long upper shadow indicates buying pressure during the session.

However, the bulls were not able to sustain this buying pressure and prices closed well off of their highs to create the long upper shadow.

Because of this failure, bullish confirmation is required before action. An inverted hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation. The application of an inverted hammer also goes with periodicity. The formation of an inverted hammer on a higher time frame will give more potent result.

Engulfing

Like the picture above engulfing requires an existing or previous downtrend or decline. The last candle before the engulfing candle must be bearish. The engulfing candle must be bullish and must ‘swallow’ the previous bearish candle in a manner that the previous candle can completely fit into it. A bullish confirmation may be required. The formation of the pattern on a higher time frame will give more potent result.

Bullish Piercing

This requires an existing or previous downtrend or decline as in the picture above. The last candle before the piercing candle must be bearish. The piercing candle must shoot/pierce/cover the over or at least fifty percent of the previous candle. The piercing candle must be bullish.  The piercing candle must open lower than the close of the previous candle, then closes above the midpoint of the body of it. A bullish confirmation may be required. The formation of this pattern on a higher time frame will give more potent result.

Given an array of candlestick formations, the four above could simply be looked for on your Meta trader platform and any which supports candlestick charting taking into cognisance the periodicity. I am of the positive opinion that you could be trading profitably based on the fact that you can actually recognise these patterns.

Currency Effect on Trade Review

What I want to do in this post is explore how trade imbalances, in theory, should be resolved by freely floating currencies. So let's just say, that at the beginning of our time period — like we did in the last post — that the exchange rate between the Chinese Yuan and the US dollar is 10 to 1. So the last time people traded these currencies, they exchanged 10 Yuan for 1 US dollar. And, when I say "dollar," I'm going to implicitly mean the US dollar. Now, let's think about two entrepreneurs in each of the countries — or one in each of the countries.

So let's talk about a Chinese entrepreneur. So we are in China here, and he makes dolls. He makes dolls. So let me draw one of the dolls. And in order to profitably sell a doll, he needs to sell them for 10 Yuan. If he's able to sell for the equivalent of 10 Yuan in the United States — and we won't talk a lot about shipping and what currency you'd have to pay it in, and all of that — then he can pay all of his needs — maybe even the shippers across the Pacific — maybe their employees are also Chinese, so they want their money in Yuan. And obviously, most of the cost would be for manufacturing this doll. And all of his employees want to be paid in Yuan. His own rent for the factory, or even his own rent for his own house, it all has to be paid in Yuan. So this is what he needs to sell his doll for:10 Yuan. And at the current exchange rate, that would be 1 US dollar. Now, let's go across the Pacific.

 Let's go to the United States. And let's say that we have another entrepreneur who is making soda, or making cola, for export. So let me draw a can of cola. And similarly to this guy in China, he needs to sell his product abroad for the equivalent of a dollar, so that he can cover shipping costs, and the manufacturing costs, and the high fructose corn syrup, and all of that. So needs to sell for 1 US dollar. And once again, he cares about dollars, because he has to pay his own mortgage in dollars — his employees need to be paid in dollars — maybe the shippers he used, they only accept dollars. So this is how both of these characters think about it. Now at this current exchange rate, let's say that the demand for these dolls that there is demand for 100 dolls in the United States.

This guy is exporting, and so is this guy. We'll make it very simple. They're only focused on exports. So at current exchange, (and I'll do it for both), for the doll guy, there is demand for 100 dolls in the United States. So what does that mean? That means that if he can sell these dolls for 1 dollar — which is equivalent to 10 Yuan — then there are going to be 100 people in some time period — let's say it's a year or a month — who are going to be willing to buy the dolls at that price. And let's say — also at this current exchange rate — in China, 50 people are willing to buy this cola. So at the current exchange rate, there is demand for 50 cans of cola in China. (Obviously, these are ridiculously low numbers, but we're just dealing with simple numbers to help our thinking.) And let me write the phrase "at current exchange rate" as well.

So what we're saying is that, in China, he needs to get a dollar. At the exchange rate, that's 10 Yuan. So if he were to — at a store in China, or to a distributor in China, maybe — sell each of these cans for 10 Yuan, there's demand for 50 cans of cola in China. Now, what's going to happen here? I think some of you all might already see that a trade imbalance is developing. So what's going to happen here? So this guy, he likes doing this — and this guy likes doing it — so what's going to happen? In this time period, this Chinese guy is going to ship over 100 dolls to the United States. So let me write this down. This is China. This is the US over here. And what's the US going to do? Well, the US is going to ship over — essentially — Remember, he's selling this in the United States. So each 10 Yuan is 1 dollar. So for each doll, he's going to get 1 dollar. So he's going to get back 100 dollars for his dolls. And then, once he gets back 100 dollars for his dolls, he's going to want to convert them into Yuan. So then he will try to convert the 100 dollars into yuan. So this is what'll end up happening for this guy. And let's say these are the only two people trading between China and the United States, just to really simplify things.

Now let's think about what happens on the right side over here. This guy is going to ship 50 cola cans to China. So we have a cola can right over there — cola. He is going to ship 50 of them to China from the United States. And what is he going to get back in return? Well, it's being sold to Chinese distributors, so they're going to pay him in Yuan. So for each can, at the current exchange rate — or at the current price — he's going to get 10 Yuan. So when you convert it back, he's going to get 10 Yuan per can. So 10 Yuan times 50 is 500 Yuan. 500 Yuan is what he's going to get. And then, he's going to try to convert — Let me write that in a different color, just really for the sake of it. So he's going to try to convert — because he has to pay his expenses in dollars — his 500 Yuan into —

Now, what's the exchange rate that he wants to get — his goal? To cover his costs, he has to get 10 to 1. So 500 Yuan into 50 dollars. And let me make it clear: this guy thinks he's going to get 10 Yuan for every dollar so he wants to convert his 100 dollars into 1,000 Yuan. So let me write it here: 1,000 Yuan. I should have written it over here. 1000 yuan over here. So what just set up? If these are the only people trading goods and currency in this time period, what did we just set up? Well, clearly, this guy is shipping more value to the US than this guy is shipping to China. There's a trade imbalance. If you think of it in terms of dollars, this guy is shipping 100 dollars worth of goods to the US, while this guy is only shipping 50 dollars worth of goods to China. So there's a net trade imbalance of 50 dollars. China is shipping 50 dollars more to the US then the other way around. If you think about it in Yuan, it would be a trade imbalance of 500 Yuan. And because of that, this guy is trying to convert many more dollars into Yuan than this guy is trying to convert the other way around.

Notice: there is more demand for Yuan than dollars. What's going to happen — especially if these are the only two people trading? If these are the only two people trading, this guy is going to say, "Hey, I've got 10 Yuan." "Let me convert it into dollars." It'll be just like what we saw in the last post. And, obviously, there'll be more actors here. But this guy has more stuff to convert than this guy. In fact, if these were the only two people trading, he wouldn't even be able to convert all of his currency into Yuan, because there's only 500 Yuan available on the market. This guy thinks he should get 1,000 Yuan. And, obviously, if the price of the Yuan goes up, like we've seen in the previous post, maybe there will be more people who want to convert Yuan, maybe fewer people who'd want to convert dollars. So we can think about all of those. But I really want to think about how this will potentially resolve the trade imbalance.

So we have a situation with more demand for Yuan than dollars. There's a demand for 1,000 Yuan here, but there's only 500 Yuan being sold. Or you could view it the other way. There's only demand for 50 dollars. And there's 100 dollars being sold. Either way there's an imbalance. So what's going to happen? Well, you're going to have either — depending on how you want to view it you could say that the price of the dollar will go down. Or you could say that the price of the Yuan will go up. And the dynamics would be like we saw in the last post. This guy over here would sell a couple of his Yuan. And he'd say, "Wow, there's this guy over there who really wants to buy it." And then maybe he'll keep saying, "Well, you know what, instead of giving me a dollar for every 10 of my Yuan, why don't you give me a dollar for every 9 of my Yuan?" Or eventually, "Why don't you give me a dollar for every 8 of my Yuan?" And so he'll keep raising the price of the Yuan. He'll keep giving fewer and fewer Yuan for each of the dollars.  Let's say this goes on for a little bit. And I really want to explore the trade imbalance. Let's say at some point — and, obviously, maybe more and more people come into the market. So, eventually, it clears.

Because, right now, there isn't enough Yuan for this guy. But as you can see, the price of the Yuan goes up. So after all of this, because of this trade imbalance, because more people want to convert dollars into Yuan than Yuan into dollars, the currency changes. So you could imagine — and I'm just going to make up some numbers here — that the Yuan becomes more expensive. It was 10 Yuan to the dollar; now maybe it is 8 Yuan to the dollar. So this is where we get to eventually. Because of this supply demand imbalance right over here. 8 Yuan to a dollar. Now, what's the reality over here? This guy over here needs to sell his dolls for 10 Yuan, which before was the equivalent of 1 dollar. But now, how much is he going to sell his Yuan for? He needs to sell for 10 Yuan. That's 8 Yuan per dollar. Right?

 So let's think about how much his dolls cost. So his dolls, in the US, now that the Yuan has appreciated, they were 10 Yuan. And then, times — we have 1 dollar for every 8 Yuan. So this is going to be equal to — (The Yuans cancel out.) This is really just dimensional analysis you might have learned in chemistry. So 10 over 8 is what? That's 1 and 1/4. This is $1.25. One dollar and 25 cents. Notice the price of his dolls went up in the United States in terms of dollars. And let's think about what happened to the cola manufacturer right over here. So his costs — or the price he needs to sell them for — are 1 dollar. And now what's the exchange rate? Let me write it the other way, because I need to cancel out the dollars. We have 8 Yuan for every 1 dollar. Dollars cancel out. 8 times 1. His selling price in China will now be 8 Yuan. So notice, neither of these people changed their prices in terms of their home currency.

No change in price at all. But because of the currency movements, because the Yuan became more expensive, the Chinese manufacturer's goods are now more expensive in dollars. And the American manufacturer's goods are now less expensive in Yuan. So what's going to happen? What's going to happen here? At a dollar, there was a demand for 100 dolls in the United States. But now that the price has gone up to $1.25. now there will only be demand at this higher price for 50 dolls in the United States. And let's say this guy over here, before, there was demand for 50 cans of his cola in China — because it was 10 Yuan — but now, the price has gone down. So now, you can imagine that there is demand — or actually I should say there's demand for 50 dolls. And, now, because this guy's price has gone down, now, instead of demand for 50 cans, maybe there's demand for — and I'll just make up a number — 80 cans.

 Maybe there's now demand for 80 cans. So what just happened to the trade imbalance? Before, in terms of either currency, we were buying more dolls — if you think about from the US perspective — and shipping fewer cans of cola. But now, we're buying fewer dolls, because it's now more expensive in the United States. and we're shipping more cola. So I don't even know how this math works; I'm going to let you figure that out. But as one currency gets more and more expensive, those exports — the demand for those exports from those countries is going to go down, like we saw with these dolls. And on the other side, as the other currency gets cheaper and cheaper and cheaper, the demand for those exports will go up; because in other currencies, it will look cheaper. And, eventually, you should have some type of trade balance.

What is Forex.

What I want to do in this post is to give you an intuitive sense of how a market for currencies would actually work. And it's very nonintuitive for a lot of people. Because we're going to be talking about currencies becoming more expensive or cheaper — or the price of a currency [becoming more expensive or cheaper] in terms of another one. And what I just want to do is give you a very intuitive feel for that. So let's say — just because it's a hot topic right now — let's just make the two currencies the Chinese renminbi and the U.S. dollar. And the unit of exchange — and China's a little confusing — Because sometimes they use the word "renminbi" — sometimes they use the word "Yuan." The Yuan is the unit of [exchange for] the renminbi.

So let's say right now, if I were to just go on some website — And this is not the actual exchange rate right now. But let's say, right now, the quoted exchange rate is 10 Yuan per U.S. dollar. 10 Yuan is equal to 1 US dollar. And every time I say "dollar" in this video, I'm referring to the US dollar. ( — is equal to 1 US dollar.) I think this makes sense to a lot of people. If I have one dollar, [and] I want to convert it to Yuan, I get 10 of them [Yuan]. If I have 10 Yuan and I want to convert [them] to dollars, someone is going to give me a dollar for [them]. Now let's imagine a situation — (And in the next few videos, I'll construst actual trade imbalances where this would actually happen.) But let's say we live in a reality where there are 1,000 — — so let's say someone has 1,000 Yuan. So let's say that this person right here has 1,000 Yuan — and wants to convert to dollars. Now, let's say, on this side — And if we just superficially looked at this 1000 Yuan — and looked at the quoted rate,we'd say "Hey, that 1000 Yuan — you divide, you get 10 Yuan/dollar, so that should be a hundred dollars, at the quoted rate." Let's say you have two other actors over here. And obvioulsy, this market involves many, many more than just three people.

But this will help us simplify or at least understand, how these exchange rates would work. Let's say that this person right here — let's say that this person right here with the mustache — let's say that this person right over there, and maybe a hat as well — Let's say that he has 50 dollars — he has 100 dollars that he needs to convert to Yuan. Maybe he wants to buy some Chinese goods. Maybe he is a Chinese factory owner who sold his goods in the US for 100 dollars. And now he needs to convert it back to Yuan to pay his employees or pay his own mortgage, or who knows what. And let's say that there's another person — Let's say there's another character over here. And let's say that she also she also has a hundred that needs to be converted into Yuan. So, net-net, what's happening here? What's the total demand to convert Yuan into dollars, and dollars into Yuan? Well, if you look at the whole market, you have $200 that need to be converted into Yuan. So let me write this down.

 We have a situation where 200 dollars need to be converted into Yuan. And then, on the other side of that transaction, we have 1000 Yuan that need to be converted into dollars. So, now we have 1,000 Yuan need to be converted into dollars. And for simplicity, these are the only actors. They are representing the entire market. Although, as we know, in currency markets especially, there are thousands — or even millions — of actors actively participating in them. So what's going to happen? All of these people might just go on the Internet, and look up the current exchange rate or the last exchange that occurred — and [say] "Hey, you know what, me over here, this $100, I should be able to convert into a 1000 Yuan." But she also says "I should be able to convert this 100 dollars into a thousand Yuan." So they collectively think that that 200 dollars can be converted into 2000 Yuan. So I'll put this in question marks. So will they be able to convert this into 2000 Yuan? And on this person over here, he's saying, "Well, just at the current exchange rate maybe I'll be able to get for my thousand yuan — maybe I'll get 100 dollars." But everyone wants to maximize the amount of the other currency they get — for obvious reasons.


 They want to maximize the amount of money they get. Now. Will these 2 people be able to convert their money into 2000 Yuan? Remember. What I said is that this is the entire market. It's a huge [over]simplification. But there is this imbalance here: more dollars into Yuan than Yuan into dollars. Now, they won't be able to convert into 2,000 Yuan, because there's only 1,000 Yuan that wants to be traded. (There's only 1,000 Yuan that wants to be traded.) So you could imagine, this guy over here, maybe he wants to do it slowly, just to kind of see what the market is like. So, let's say, at first he puts 10 Yuan up — essentially for bid. You could do it either way. You could say that maybe one of these people put a dollar up for bid. And this guy is bidding on that dollar in terms of Yuan. Or this guy is putting Yuan up for bid. And these guys are going to bid on it in terms of dollars. Either one. And that's why it's sometimes confusing with currency. It's because you are buying another currency. But since this guy['s currency] is more in demand.

 To simplify things, I'll make him the person that's kind of able to create an auction-type situation — which really is what the markets are trying to do, so that you can equalize supply and demand. So he might put out — he might initially say: "Hey, you know what? I want to convert —" He has 100 Yuan, and he wants to convert it. So he says, "You know what? I'm willing to sell 100 Yuan for $10." So, let's say he sells 100 Yuan for 10 dollars. So he sells 100 — or offers, I should say — offers to sell 100 Yuan for 10 dollars. She just thinks that's a fair offer price, right over there. And that's this guy over here, this guy actually converting yuan into dollars. Well, what's going to happen? Well, one of these people are just going to jump at that. They say, "Oh. You know what? I think that's a fair price." And so, let's say, this woman right over here takes it. Actually both of them, maybe, saw that offer to sell 100 Yuan for 10 dollars. And they both tried to click their mouse, or however they're trying to make the transaction [happen].

 But let's say she clicks her mouse a little faster, and she gets the transaction. So let's say — Let's call this Person B, and this is Person A, and this is Person C. So Person B accepts. So two things happened just then. One is, Person C says, "Well, that was pretty fast." "Someone was very willing to take it for 10 yuan per US dollar." And then this guy goes, "Oh my! I need to convert my money into Yuan; but I wasn't able to." "Someone else beat me to the punch!" So this guy over here is like, "Hey, maybe people are willing to give me more dollars per yuan." So, let's say that this guy right over here — this guy in orange — he then offers to sell. Let's say he wants to sell 90 yuan for 10 dollars. Notice. The price of the Yuan has now gone up — or the price of the dollar has now gone down. Either one, those are symmetric statements. They mean the exact same thing. So, all of a sudden, this person has a lot of dollars he needs to convert into Yuan. So he accepts really fast. So, person A accepts. And I'm doing a huge oversimplification. But it gives you the general idea to show you that this really is a market. So Person A accepts.

All of a sudden we have a new quoted exchange rate. All of a sudden we have an exchange rate of — What is this? — 9 Yuan. So we have [a] new quoted rate — or the transaction happens at 9 Yuan per dollar. Now, what's happening? And I think you see the dynamic that is going to happen. There are more dollars that need to be converted into Yuan than Yuan that need to be converted into dollars So, this guy — as he sees that there's a lot of demand to get his 1000 Yuan — he's going to keep offering fewer and fewer Yuan per dollar. Or, these guys are going to start accepting fewer and fewer Yuan for each of their dollars. So, as this happens, the price of the Yuan will go up. Notice: the price of Yuan went up here. It was 10 Yuan per dollar; now it is 9 Yuan per dollar. Or you can say that the price of the dollar has gone down. And this will just keep happening until all of them are able to get rid of their currency.

It's actually dependent. There's no mathematical formula to say what the clearing price is. It's actually dependent on how badly each of these people are willing to transact and really how good they are at gaming each other. But the general results here — and this is what I really want you to get from this video is that because there's no law in a market exchange rate mechanism that says, "This has to be the exchange rate" — we'll explore how you can peg it in the future but there's nothing that says that this has to always be the case. If there's more demand for Yuan than dollars — as we see in this example — the price of the dollar will go down. I'll do this in a — Price of dollar will go down. And then — which is the exact same thing — which means the exact same thing as, "The price of yuan will go up —" I really want you to internalize this. — will go up in terms of dollars. [The] price of dollars, in terms of Yuan, will go down. And this is the crux of foreign exchange. If you can, at least, internalize these ideas and understand that there really is this market out here, based on the supply and demand of Yuan. Over here, the demand for Yuan is exceeding its supply so price will go up, and — Or you can do it the other way. The demand for dollars is below its supply. So, the price will go down. Anyway, I'll let you think about that for a little bit. And in the next video, we're going to apply this concept to see how this freely floating exchange rate can help equalize — or should help equalize — trade imbalances in an ideal world.

Currency Effect on Trade