Forex Trading Currency Pairings And What They Mean
When talking to people who have never tried forex trading before, even those involved in futures, stocks, and bonds , it always reminds me that sometimes even the most basic foundational elements of this global powerhouse of a market have to be explained . So let’s jump right into what the pairings mean, what the main pairings are, and what the cross pairings are .
What is a currency pair ? Let’s start with the Eur/Usd which has the US Dollar as the base currency in the pair against the Euro . So what does that mean when I see a price quote of 1.3200 on the Eur/Usd ? To remember this answer the easy way, do this: you take the base currency pair, in this case the US Dollar , look at the price quote of 1.3200 , and then say , " to buy 1 Euro it will take me 1.3200 US dollars ." This is what that price quote really means. If you check the price quote a couple of months later and it is suddenly 1.4000 this means that against the Euro the US dollar has become weaker because it now takes 1.4000 US Dollars to buy 1 Euro . Of course , if the price quote is 1.2500 a couple of months later , then the US dollar is getting stronger because now it will only take 1.2400 US Dollars to buy 1 Euro .
Forex trading can become even more challenging when for the Usd/Jpy pair you see a price quote that is 100.50. Using the method we discussed, simply take the base currency of Jpy take a look at the price quote that is 100.50 and that is how many Jpy it will take to buy 1 US Dollar . Pretty easy huh ? In the future you shouldn’t have difficulty understanding a pair and its price quote when looking at a quote window or even a chart screen.
Since you know can read price quotes , what are the main and cross pairs ? You’ll find the main pairs happen to be the strongest world economies paired versus the US dollar. A few of these pairs are Eur/Usd, Gbp/Usd, Aud/Usd, Usd/Cad, Usd/Jpy, and Nzd/Usd . Cross pairs do not involve the US dollar which includes the Gbp/Jpy and the Eur/Jpy to name a couple that are popular.
Hopefully you’ll be helped by this article if you have been intimidated by the forex trading landscape in the past . You may need a bit of time to get used to this with the many economies, currency pairs, and different time zones . After you start understanding how everything falls together it’s really not that bad – and many actually find it exciting and fun !
