Those of you who are interested in Forex trading should know that in practice we trade currencies.
Forex trading is basically buying one currency and selling another currency at the same time.
Any currency that can be traded is none other than a currency that is paired with another currency.
What is a currency pair?
A currency pair is a quote of two different currencies. The currency written first (before) is called the base currency, and the second currency is called the quote currency.
A currency pair compares the value of one currency to another; the base currency (first currency) versus the quote currency (second currency). The currency pair shows how much of the quote currency is needed to buy one unit of the base currency.
Currency pair trading can be found in the foreign exchange market, also known as Forex (forex).
This is the largest and most liquid market in the financial world. This market allows us to buy, sell, trade, and speculate on currencies. The Forex market is open 24 hours a day, five days a week (including many holidays). Liquidity in Forex Trading.
In Forex trading, we buy one currency and sell another currency at the same time, but the currency pair itself is considered a single unit (the instrument being bought or sold).
When you buy a currency pair, you are buying the base currency and selling the quote currency.
Conversely, when you sell a currency pair, you are selling the base currency and receiving the quote currency.
Currency pairs are quoted at bid and ask prices. The bid price is the price at which the broker will buy the base currency from you. The ask price is the price at which the broker will sell the base currency to you.
Major currency pairs The currencies
Major currency pairs The currencies that are paired with the US dollar (USD) are the most widely traded currencies and are referred to as majors, namely:
- EUR/USD or Euro vs. US Dollar
- USD/JPY or US Dollar vs Japanese Yen
- GBP/USD or British Pound vs US Dollar
- USD/CHF or Swiss Franc vs US Dollar
- AUD/USD or Australian Dollar vs US Dollar
- USD/CAD or Canadian Dollar vs US Dollar
Learn how to calculate the seeds.
The most widely traded currency pair is the EUR/USD, making it the most liquid currency pair.
For example, a EUR/USD quote of 1.1000 means that one euro is exchanged for 1.1000 US dollars. In this case, EUR is the base currency and USD is the quote currency.
This again means that 1 euro can be exchanged for 1.10 US dollars.
Another way to look at it is that it will cost you $110 to buy 100 euros.
Minor and Exotic Pairs
Currency pairs that are not pegged to the US dollar are referred to as minors.
These pairs have slightly wider spreads and are not as liquid as the major currency pairs, but are still quite liquid.
The most widely traded crosses are currency pairs, one of which is also a major currency.
Some examples of such crosses include EUR/GBP, GBP/JPY and EUR/CHF.
Read what is meant by spread.
Exotic currency pairs include emerging market currencies. They are illiquid, and the spreads are much wider.
An example of an exotic currency pair is USD/SGD (US dollar/Singapore dollar).
How to trade Forex?
Generally to start trading Forex, you need to learn more about Forex aka learn to trade, choose a broker that suits your needs, open an account, make a deposit, learn how the trading platform works, and then you are ready to trade.
Read our complete guide on how to practically start trading Forex.