The Major Pairs and Principles of Trading In Forex

If you look at the quotation structure of Forex currency market, you will see something
like USD/EUR or GBP/USD. These are the Forex currency pairs.

All Forex trades that involve buying of one currency and selling of another, are done in
Forex currency pairs. E.g. you buy Euros with US Dollars anticipating that the price of
Euro will increase in value relative to the US Dollar. So, when the Euro rises relative to
Dollar, you sell it and make profits.

Common trading pairs
The Forex currency pair is a single unit, an instrument that is bought or sold in the forex
market. Though there are many currency pairs available in a Forex trading system the
most commonly traded Forex currency pairs are:
EUR/USD – Euro vs. U.S. Dollar
GBP/USD: British Pound vs. U.S. Dollar
USD/JPY: U.S. Dollar vs. Japanese YEN
USD/CHF: U.S. Dollar vs. Swiss franc

In the Forex currency pairs, the value of one currency is determined by its comparison to
another currency. When the Forex currency pairs are quoted, the first currency is referred
as base currency and the second currency is called counter or quote currency.

The base currency is always equal to 1 monetary unit of exchange (e.g. 1 EUR, 1 GBP, 1
USD). The currency pair shows how much of the quote currency is needed to purchase
one unit of the base currency.

Buying and selling
The Forex currency pairs are usually traded and quoted with a ‘bid’ and ‘ask’ price. The
‘bid’ is the price at which the broker is willing to buy and the ‘ask’ is the price at which
he is willing to sell.

For example, if the USD/EUR currency pair is quoted as - USD/EUR = 1.5 and you
purchase the pair, this means that for every 1.5 euros that you sell, you get US$1. If you
sold the currency pair, you receive 1.5 euros for every US$1 you sell.

Base Currency
This is the first currency quoted in a Forex currency pair. It is also known as domestic
currency or accounting currency and sometimes referred to as the primary currency of a
Forex currency pair. For example, CAD/USD currency pair. Here the Canadian dollar is
the base currency while the U.S. dollar is the quote currency.

The price represents how much of the quote currency is needed to get one unit of the base
currency.

Major base currencies:
Euro - EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD
British Pound - GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD=
US Dollar - USD/CAD, USD/JPY, USD/CHF

Quote Currency
This is the second currency quoted in a Forex currency pair. This is also referred to as the
foreign currency, secondary currency or counter currency.

Major quote currencies:
U.S. dollar
British pound
Euro
Japanese yen
Swiss franc
Canadian dollar