Currency Pairs

 

Understanding currency pairs, particularly the major Forex pairs, is an excellent place to begin learning to trade Forex online. The good news is that the fundamentals are straightforward, and quoted pairings are consistent across all currencies.

The majors are the world's most traded currency pairs. They are the most liquid and appealing to all types of forex traders. The EUR/USD is by far the most traded pair, accounting for about 30% of all daily currency trades on the global forex market.

Forex trading varies differently in that you are speculating on the value of one currency concerning another. A currency pair is formed when two currencies are combined and priced against each other.

This relative value is expressed as the number of units worth of the first currency about the second currency. So, if the US dollar is priced against the Japanese Yen, and the exchange rate is 113.00, one dollar is worth 113.00 yen.

Assume you believe that the euro will decline. The euro is listed against both the US dollar and the British pound in the currency pair list. Forex trading provides an edge because it allows you to choose whatever currency you believe the euro will weaken the most against.

As a result, the currency combination in question is the euro vs. the US Dollar (EUR/USD). Rates you can trade can be found to the right of the symbols for the currency pairs. The bid is the price at which a currency pair can be sold, and the ask is the price at which it can be purchased. If you are selling the first-named currency, you always deal at the 'bid .' If you are buying the first-named currency, you always deal at the 'ask.'

A currency pair expresses the value of one currency to another; hence the price indicated for the currency pair is the number of dollars per euro. If you are correct and the euro falls in value, one euro will be worthless in US dollars. In other words, the currency's value will have decreased. So you'd be selling EUR/USD in the hope that the rate falls, and the rate you'd be dealing at would be 1.1036.

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