Pairs

22 veebr. WHAT ARE FOREX CURRENCY PAIRS?

Every currency has its own three-letter symbol that will represent that country and the currency that is being traded. For example, the Japanese yen is the JPY and the United Stated dollar is USD. The British pound is the GBP and the Euro is the EUR.

You can trade within many currencies in one day, or you can trade to a different currency every day. Most all trades through a broker, or those any company are going to require some type of fee so you want to be sure about the trade you are making before making too many trades which are going to involve many fees.

Trades between markets and countries are going to happen every day. Some of the most heavily trades occur between the Euro and the US dollar, and then the US dollar and the Japanese yen, and then of the other most often seen trades is between the British pound and the US dollar. The trades happen all day, all night, and thought out various markets. As one country opens trading for the day another is closing. The time zones across the world affect how the trading takes place and when the markets are open.

When you are making a transaction from one market to another, involving one currency to another you will notice the symbols are used to explain the transactions. All transactions are going to look something like this EURzzz/USDzzz the zzz is to represent the percentages of trading for the percentage of the transaction. Other instances could look like this AUSzzz/USD and so on. When reading and reviewing your forex statements and online information you will understand it all much better if you are to remember these symbols of the currencies that are involved.

Forex Currency pairs in Forex trading have been standardized by the IMF.

The Forex currency pairs most commonly traded are:

  • EUR/USD, the Euro and the U.S. dollar
  • USD/CHF, the U.S. dollar and the Swiss franc (sometimes called “the Swissie”)
  • GBP/USD, the pound sterling of Great Britain and the U.S. dollar (sometimes called “the cable”)
  • USD/JPY, the U.S. dollar and the Japanese yen
  • USD/CAD, the U.S. dollar and the Canadian dollar
  • AUD/USD, the Australian dollar and the U.S. dollar

These pairs account for 80% of all trades in the Forex market. They all involve the U.S. dollar, because it’s still the biggest economy in the world and one of the most inviting to trade. But this is also a holdover from the Bretton Woods Accord of 1944, which pegged all currencies to the U.S. dollar as a benchmark. Although the Accord was abandoned in the early 1970s, some of its effects are still evident in the market.

The first currency in the pair is known as the base currency, and it’s the important one. Its value is always one in the exchange rate, and it controls the direction of the trade and the chart. The second currency is called the cross.

For example, in the GBP/USD, the British pound is the base currency and the U.S. dollar is the cross. If the price on this pair is 1.7609, that means that one pound is worth 1.7609 U.S. dollars. If the chart goes up, that means the pound is strengthening against the dollar; if it goes down, the dollar is strengthening against the pound.

Because a purchase automatically includes two currencies, one being traded against the other, it’s just as possible to make a profit in a bear market as a bull market. For the same reason, there’s no prohibition against selling short in Forex trading as there is in the stock market; it’s built into the system.

Prices are measured in pips, which is an acronym for Price Interest Point, and it’s the smallest digit in the price. This is an important point, because not all pips are created equally; they reflect the base currency of the pair. If the U.S. dollar is the base currency, then one pip equals one dollar in a mini account or ten dollars in a standard account. If you place a trade with one of these currencies and earn fifty pips, that would be a profit of $50 in a mini account or $500 in a standard one.

But if the base currency is not the U.S. dollar, then the value of one pip is equal to one unit of the base currency. In the GBP/USD, because the pound sterling is the base currency, one pip is equal to one pound; in the AUD/USD, one pip equals one Australian dollar. Therefore, when you take profits in these currencies, you’re taking them in the base currency, which then must be exchanged into the U.S. dollar at the current exchange rate.

If the exchange rate is one or more, then this works in favor of U.S. traders; but if the value is below one, it’s not such a good thing. For example, a gain of fifty pips in the GBP/USD equals not U.S. $50, but £50. If the exchange rate was still 1.7609, then the profit after conversion would be around U.S. $88.
But a gain of fifty pips in the AUD/USD equals AU $50, and the exchange rate is more likely to be around 0.7467. So the profit would be closer to U.S. $37.