Basic Forex Terms – Currency Pairs
Let’s talk today a bit about another basic forex term – “currency pairs’”
The value of any currency on Forex is determined in relation to the value of all other currencies. In other words, the value of 1 U.S. dollar changes based on whether you are comparing it to the Euro, the Australian dollar, the Japanese Yen and so on.
The buying and selling of any of these currencies is always done in what’s known as currency pairs.
A currency pair consists of a base currency and a quote currency. The base currency is the currency you intended to purchase. The quote currency is the currency you intend to use to purchase the base currency.
Together, the pair shows you how much of the quote currency is needed to buy one ‘unit’ of the base currency.
To illustrate this, let’s look at some exchange rates for December. 15th, 2007. We’ll compare the U.S. Dollar against the Euro, Canadian Dollar and Japanese Yen:
1 EUR = 1.44245 USD 1 USD = 0.69326 EUR
1 CAD = 0.98303 USD 1 USD = 1.01720 CAD
1 JPY = 0.008828 USD 1 USD = 113.275 JPY
The pairs are as follows:
EUR/USD = 1.4 selling Euros to buy Dollars
USD/EUR = 0.69 selling Dollars to buy Euros
CAD/USD = 0.98 selling Canada Dollars to buy U.S. Dollars
USD/CAD = 1.01 selling U.S. Dollars to buy Canada Dollars
JPY/USD = 0.0088 – selling Yen to buy Dollars
USD/JPY = 113.27 – selling Dollars to buy Yen
Notice that the currency being sold is listed first. The EUR/USD pair tells you that for every Euro you sell, you are purchasing 1.4 U.S. Dollars. Likewise, the USD/EUR pair tells you that for every Dollar you sell, you are purchasing 0.69 Euro.
You are always buying and selling simultaneously when you trade currency on Forex.
I hope this makes it a lot clearer….
Till next time…
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