What Are Forex Currency Pairs And How You Use Them When Trading

Forex Currency Pairs

Foreign Exchange trading, or forex, is made up of simultaneously buying one currency and selling another.  The two currencies being traded are called a currency pair.  When a currency pair is listed in shorthand with a line between them it is called the currency quote.  For example, USD/EUR is dollar and Euros.  Since there are so many various currencies available in the world, they are divided into major and minor currencies.

Major currencies include the seven most frequently traded.  These are the US dollar, Euro, Japanese Yen, British Pound, Swiss Franc, Canadian dollar, and Australian dollar.  Any other currency is considered minor and is generally harder to profit from due to greater differences in the exchange rates.  Any currency pair that does not include the US dollar is called a cross currency.
Historically, money was always converted to dollars before being converted again into the desired currency.  Cross-trading was a way to eliminate the extra practice of conversion.

The most commonly traded forex pairs are considered to be the EUR/USD (the Euro vs. the US dollar), GBP/USD (the British pound vs. the dollar), USD/JPY (you should know the first one by now vs. Japanese Yen), and USD/CHF (Swiss Franc).  The first currency quoted is known as the base currency.  The base currency is always equal to one unit of exchange: one dollar, one Euro, etc.  The second, the quote currency, is the price needed to get the base currency.

Typically, it will look something like this: USD/EUR = 1.2345.  This means that $1 = 1.2345 Euros.  If you are buying this trade, you are speculating that the base currency, in this case dollars, is going to increase in value.  If you are selling this pair, you are assuming Euros are going to be more valuable.  Not so difficult, huh?

Understanding forex pairs is the basis for trading currencies.  For a beginner, choosing just one or two of the commonly traded pairs will both ensure simplicity and give you a greater understanding and confidence of how the market works.  Forex trading is a twenty-four hour, exhilaratingly fast paced market.  In order to make it a profitable venture, make sure you understand how the system works.

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Tagged with: Australian Dollar • Base Currency • British Pound • Canadian Dollar • Cross Trading • Currency Exchange • Currency Pairs • Currency Quote • Currency Trading • Exchange Currency • Foreign Exchange Trading • Forex Currency • Gbp Usd • Japanese Yen • Jpy • Minor Currencies • Pairs Trading • Shorthand • Trading Currency • Us Dollar Euro

Filed under: How To Trade Forex

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