Forex Currency Pairs
Forex currency pairs are used in every transaction in the Forex market. If you plan on getting involved in the market, you will need to have a basic understanding of what these pairs are and how they work.
Every time you make a trade in the Forex market, you will be dealing with Forex currency pairs. You always have to buy one currency and sell the other. You profit from fluctuations in the exchange rate between the two currencies. You hope that the currency you are buying increases in value as compared to the one that you are selling.
Base and Quote Currency
When you see a pair of currencies listed together, you will see them listed one after the other.
The first currency in the group is known as the base currency. The second one is called the quote currency. When you buy a pair, you are buying the base currency and selling the quote currency. When you make a sell transaction, you are selling the base currency and buying the quote currency.
For example, one of the most common pairs is the GBP/USD. This is a pair that represents the Great Britain Pound and the United States Dollar. If you buy this pair, you are buying the Great Britain Pound and selling the Dollar. You hope that the Pound increases in value as compared to the dollar.
Certain pairs are considered to be the majors in the Forex market. These pairs make up the vast majority of trades on a daily basis. Some estimates say that as much as 85% of transactions involve one of these pairs. The pairs are EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and USD/CAD. The NZD/USD is also sometimes included in the group. When you trade these pairs, Forex brokers will generally have better spreads on them than with some of the less common pairs.
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