What are Currency Pairs in Forex?

What are Currency Pairs in Forex?

by Bryn Fest

If you’re new to the world of forex, then it can be confused on where to start. If so, then it can look a bit intimidating to just jump right in. You need a strategic plan if you plan to break into forex trading, and it all starts by knowing the basics.

In this article, we’ll explain what a currency pair is, how they can turn over a massive profit, and where to get started with forex trading below.

The Basics

The average amount of money that is traded within the U.S. stock market daily totals to around $257 billion a day, give or take. While you might already be impressed by that number, that is only a mere fraction of what the forex trading market makes each day. According to Forex.com, the forex trading market has an incredible turnover of around $5.1 trillion per day.

Basically, “forex” means “foreign exchange”. You are essentially buying and selling currencies simultaneously to make a profit. Being able to predict when currencies rise or fall is key in the forex trading market. You want to be able to turn as large a profit as possible without risking too much at once, after all.

Let’s start by learning about currency pairs and how they work.

Currency Pairs – How Do They Work?

As its name implies, a currency pair is a pair of currencies where you quote one against the other. Essentially, you are getting a quote for the exchange rate between the two, which you can then leverage to your advantage.

For example, say the value of the U.S. dollar goes down and the euro goes up. If you had these two in a currency pair, you would then list the euro as the first listed currency within the pair (also known as the base currency). The second listed currency (in this case being the U.S. dollar) is called the quote currency and that is what is sold back to the market for a profit.

The currency pairs quotes are based on the current value of the currency as well as the bid and ask prices within the forex marketplace. Basically, the forex buyer interested in your pair will buy the base currency from you in exchange for the quote currency in a bid. The ask price is the price the broker will sell you their base currency in exchange for the quote currency.

Where to Start Forex Trading

Keep in mind that the forex market is only open 5 days a week, so you cannot exactly trade every single day. However, because forex trading has a major trading center in most countries, you can basically trade at any time of day when the markets are open.

There are also plenty of beginner-friendly sites you can use to pour small investments into just to test the market out for yourself. Finding a forex brokerage company that trades in any currency you want is simple when you visit FX-List.com!