What does “imagine each currency pair constantly in a “tug of war” with each currency on its own side of the rope” mean?
For example, let’s take the British pound and the Japanese yen and the Euro and the US dollar?
Does the "imagine"sentence mean that (with my examples) the British pound is in a “tug of war” with the Euro and the Japanese yen is in a “tug of war” with the US dollar?
Thank you
Hi @ultra77, yes, you have figured it out more and less. In addition, there is concept of instrument correlation. One pair may have positive / negative relation with other pair. One movement indicates others movement.
Basically a currency pair is two separate currencies opposed to each other. Which means you can trade all currency pairs that exist on your platform, e.g. Euro / US dollar - Euro / GBP etc.
So, you can have two separate currencies opposed at one time with two other pairs, which means four separate pairs.
It means each currency in a pair (like GBP/JPY or EUR/USD) is in a constant battle of strength against the other. So in GBP/JPY, the British pound is pulling against the Japanese yen. It doesn’t mean the pound is directly in a “tug of war” with the euro or the yen with the dollar, unless they are in the same pair.
I see what you’re getting at. The “tug of war” just means each currency in a pair (like GBP/JPY or EUR/USD) is pulling against the other. It’s GBP vs JPY or EUR vs USD. Whichever currency is stronger moves the price. Simple as that!
Hope that helps! 
Yeah, It’s like a constant battle between the two currencies, and whichever is stronger at the time pulls the price in its direction. Simple and spot on!
Yes, you’re absolutely right… well done
An experienced trader used to say years ago to imagine the market as a crowd of traders in a big empty room. Imagine a big room with 10,000 anxious people all shouting what they want to do. Open outcry trading used to be like this. See in your mind what they are doing.
If most of them wish to buy they will try to win by offering higher prices than the the other buyers, or they will start waving money in their hands, or they will shout louder, or they will start pushing and fighting to get what they want to buy before it runs out - the buyers outside getting a coffee may stampede through the entry to door to get in before it’s too late. Prices are rising, don’t sell now, you will miss out.
The sellers may be either quite relaxed and casual, but then they may start dropping their prices, they may start looking anxious and rushing about trying to find a buyer, or they may start throwing their stock up in the air, or they may even panic and all rush at once for the exit door. Don’t get trampled in the crush.
The phrase suggests that in forex trading, each currency pair represents two currencies competing against each other, like opposing teams in a tug of war. The strength of one currency pulls against the other, influencing exchange rates as market forces fluctuate.
The “tug of war” analogy is a great way to think about currency pairs! It means each currency is constantly battling for strength against another. So, with GBP/JPY, the British pound is in a tug of war with the yen, while EUR/USD sees the euro competing against the US dollar. It’s a cool way to visualize how these currencies interact in the market!