Currencies are traded in Pairs

Pairs
Forex is significantly different from other markets - in the sense that the currency of a country is traded AGAINST another country's currency. Unlike in a stock market or commodities market - you trade stock or commodity of its own value.

Example: Euro is traded against US dollar - This is called a forex currency "pair" - this pair is commonly referred to as "EUR/USD".

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How the pair works:
In the above EUR/USD pair

• If the European Economy is doing better than the US economy then EURO gains in value AGAINST US dollar
• if the US economy is doing better then European economy then USD gains value AGAINST Euro.

To keep matters simple, all forex brokers and banks refer to Euro USD pair as EUR/USD (not USD/EUR).

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Trading pairs
Now that we know what a currency pair is - let's look at how it is traded. In any given pair:

1. the first currency is called a Base Currency
2. The second currency is called quote currency or counter currency

When you place a "buy" order for this currency pair (eur/usd) - you are actually BUYING Euro and SELLING US dollar.
on the other hand, if you place a "sell" order for this currency pair (eur/usd) - you are actually SELLING Euro and BUYING US dollar.

Instant recap:

• In a "buy" order you BUY base currency and sell quote currency of any given pair.
• In a "sell" order you SELL base currency and buy quote currency of any given pair.

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Reading forex quotes:
Let's jump right into it - here's how a EUR/USD pair quote looks like:

1.3396

did you say huh?! - good!!! you are on the right track!

Let's decipher: It takes 1.3396 US dollars (quote currency) to buy the 1 EURO (base currency)

Hope you figured out why the second currency is called Quote currency - all forex quotes are given in the quote currency

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Here are few forex quotes:
(a) USD/JPY = 123.53 (jpy=japanese yen)
It takes ______ of _________ to buy _________

(b) GBP/USD = 1.9801 (gbp=british pound)
It takes ______ of _________ to buy _________

(c) USD/CHF = 1.2409 (chf=swiss franc)
It takes ______ of _________ to buy _________

Try to answer them first and then see the answers below.

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Forex Majors:
Four forex currency pairs are called Forex Majors - they are:

• EUR/USD - Euro / US dollar
• GBP/USD - British Pound vs US dollar
• USD/JPY - US dollar vs Japanese yen
• USD/CHF - US dollars vs Swiss franc

These currencies are considered to be stable currencies in the world.

Now that we figured out the forex currency pairs and how they work - let's figure how to make money trading them

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Answers:
(a) USD/JPY = 123.53
It takes 123.53 japanese Yen to buy 1 US dollar

(b)GBP/USD = 1.9801
it takes 1.9801 US dollars to buy 1 british pound

(c)USD/CHF = 1.2409
it takes 1.2409 swiss francs to buy 1 US डोल्लर