Currency Pairs

Written by Jacey Harmon
Bookmark and Share

In the Forex market, currencies are always traded in pairs. As you enter a trade you simultaneously sell one currency while buying another. To make understanding currency pairs easier it is best to think of them as an instrument that can be bought and sold.

Understanding Currency Pairs

Naturally a pair contains two parts. In the aspect of currency pairs the first part is called the "base" currency and the second part is the "quoted" currency. In most cases the base currency is the U.S. dollar. The only three exceptions to this are: Euro, British Pound, and Australian Dollar. In the currency pair of U.S. dollar (USD) and Japanese yen (JPY), the USD is the base currency. In the case of the Euro (EUR) and USD, the EUD is the base currency.

If you expect the base currency to rise in value against the quoted currency you want to "buy" the base. This would require you to buy the base currency while simultaneously selling the quoted currency. For example, in a USD/JPY trade you would sell Yen and buy Dollars. If you expect the base to fall in value against the quoted currency you would sell the base.

Each currency pair is quoted with symbols for each currency. The USD/CAD pair is the U.S. dollar and Canadian dollar. The GBP/USD is the British pound and U.S. dollar pair. The first currency in the quote is the base currency. Each quote is given in units of one for the base currency. A quote for GBP/USD of 1.9142/45 indicates you can buy one pound for 1.9145 dollars and sell one pound for 1.9142 dollars.


Bookmark and Share