Forex Trading Basic

What is currency pair in Forex Trading?

Forex Trading Trendline Analysis

Forex trading Currency pairs are financial instruments traded in Forex markets. Each and Every pair of currency traded in the Forex market is considered as an individual product or financial instrument. Forex trading currency pairs are constituted by a set of two currencies, of which one currency is being bought by the other. Currency trading involves the buying and selling of currencies from around the world.

Formation of Currency Symbol

Forex trading currency pairs
In the Forex market, each currency is represented by a code consisting of three letters, which represent its English name. For example the US dollar is represented by USD, which comes from United States Dollar and the Euro is represented by EUR. We recommend that you familiarize yourself with the most important currencies to participate in the Forex market; each currency has its own symbol as for example:

Symbol Country Currency
USDUnited States Dollar
EUROEuropean Union
JPYJapan Yen
GBPGreat Britain Pound
CHFSwiss Franc
CADCanada Dollar
AUDAustralia Dollar
NZDNew Zealand Dollar

What are Forex Trading Currency Pairs?

XXX/YYY is the general format by which currency pairs are denoted, where XXX and YYY both refer to the ISO 4217 international three-letter code of international currencies. If you have US dollars (USD) and want to buy euros (EUR), in the jargon of Forex market it is said to you buy EUR / USD.

downloadCurrencies are always traded in pairs, and here are a few examples of currency pairs:

  • For Euro-Dollar pair, it would be EUR/USD
  • For Pound Sterling-Dollar pair, it would be GBP/USD
  • For US Dollar-Canadian Dollar, it would be USD/CAD
  • For Australian dollar-US dollar, it would be AUD/USD

For Dollar-Swiss Franc pair it would be USD/CHF and so on for other currency pairs according to their three-letter currency codes. 80% of all trades in the Forex market originate from these currency pairs.

Consider this example of a currency pair GBP/USD. In this example of a currency pair, the currency on the left (GBP in this case) is called the base currency. The currency on the right (USD in this case) is called the quote currency (also called counter currency).The base currency (in this case GBP) always has a value of 1 in exchange rate.

Forex trading currency pairsIn the currency pair GBP/USD, GBP is being bought, and the value of the currency on the right (USD in this case) represents how much of the base currency it is worth.

Consider another example of a currency pair EUR/USD 1.2436. This simply means 1 Euro is equal to 1.2436 US Dollars. Or it means that 1.2436 US dollars are needed to get one EUR. If you want to buy 100 Euros how much would you need in USD? You need precisely 124.36 US Dollars to buy 100 Euros.

Generally you will see the USD quoted first in most currency pairs the exceptions being Pounds Sterling, Euro- Dollar, Australian Dollar and New Zealand Dollar. The predominance of the US Dollar and the fact that it figures in a majority of forex transactions is perhaps a legacy of the Bretton Woods Agreement (1944), which pegged all currencies to the U.S. dollar.

How Forex Trading Currency Pairs prices are obtained?

forex trading currency pairsEarly in the Forex market, the world’s largest banks and large financial institutions were connected to an electronic network, where they exchanged the prices at which they were willing to sell and buy foreign currencies. With the growth of the Forex market, offering numerous players involved and demanding coins. Currently, much of the brokers get the price of currency crosses centralized information sources that provide this information to many agents simultaneously. Thus, brokers ensure that customer orders can be executed at the prices indicated customers, because prices of sources (called “feeds”), are obtained from numerous financial institutions. Other brokers have extensive customer base, so they offer the best prices at which customers are willing to buy and sell. To ensure liquidity in case there are orders that have no counterpart, these brokers often have agreements with banks.

Forex Trading Currency Pairs: Final Advices

While there are plenty of forex trading currency pairs that you may heard of, your broker may offer to trade on only a few of them. So, you may trade on your desired currency pair by Choosing Forex broker effectively. We would like to recommend you HYCM Broker that offers you plenty of options for choosing the right Forex trading pair.

Final advice on this topic: No matter in which pair you going to trade on, you must know when to trade and when not to, you should know that there are numerous studies indicating that Tuesdays and Wednesdays are the days that the majors have a larger movements in pips . Also avoid trading as far as possible during the news time that are affecting the traded pairs. It is not a very good decision to trade on Friday and days with little movement in general, as on Sundays.

READ MORE

Chapter 2Forex Trading Basics
Lesson 1Forex trading Currency pairs
Lesson 2What is pip
Lesson 3what is spread in forex trading
Lesson 4.What is leverage in Forex
Lesson 5Forex Trading Order Types

Go back to Main Page: Forex Trading for Beginners

About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

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