Forex Currency Pairs – Understanding the Basics Of Forex Investing
When you are trading in the Forex market, the trading is always done in pairs. One currency of the pair is bought and the other is sold. These are called Forex currency pairs, but in practical terms they can be thought of as one unit. Together they make up the exchange rate.
The most commonly traded pairs are:
British Pound and US Dollar (GBP/USD)
US Dollar and the Japanese Yen (USD/JPY)
Euro and US Dollar (EUR/USD)
US Dollar and Swiss franc (USD/CHF)
Here’s an example of how you would purchase these currency pairs. If you believe that the Euro is going to rise relative to the US dollar you may buy Euros with dollars. If you find that you were indeed correct you can then sell your position and collect a profit.
A newcomer to Forex maybe a bit confused by how the currency pairs are shown. Here is an example. USD/GBP = 0.60. This means that if you were to purchase this pair you would receive (purchase) US$1 for very £0.60 that you sell. Conversely if you were to sell this pair you would receive £0.60 for every $1.00 USD.
The first is called the base currency and the second is the quote currency. To understand the numbers it is best to think of the base currency as a monetary unit of 1. This could be 1USD or 1GBP or 1 EUR. The number refers to how much of the quote is required to get one unit of the base currency.
If you see that the exchange rate is rising, it means that the base currency is getting stronger. On the other hand if you see it falling, it indicates that it is weakening.
There are many different options open to beginners in this market. It is often best to concentrate on trading one of the Forex currency pairs at the beginning until you find your feet. After that you can branch out into other currencies.