Forex Currency Trading Pairs
The Foreign Exchange traders buy one and sell another currency simultaneously. This leads to expressing the Forex quotes in currency pairs. EUR/USD, USD/CHF, GBP/USD and USD/JPY are the four most important currency pairs. The former currency in the pair is called the base currency whereas the latter is called the quote (or counter) currency.
The price of a pair is written in the decimal form with four digits to the right and one digit to the left of the decimal point. The base currency is said to be getting stronger than the counter currency if the value of the quote moves from a lower value to a higher value. The opposite happens if the quote value shifts from a higher to a lower value. A trader in the long position makes profit if the price of a currency pair rises. But a trader in the short position loses out on money in case of price rise.
The price movements shown by the Exchange Rate in the Forex Trading are measured by the Percentage In Point (pip). Generally all the pairs show a pip equal to 0.0001. But the USD/JPY shows and exceptional pip equal to 0.01.
The Ask Price can be defined as the price at which a Trader is willing to pay and a Broker is willing to buy a currency pair. The Trader sells the currency pair at the Bid Price, which in turn is equal to the price the Broker will buy the currency pair for.
A Spread equals the difference between the Ask price and the Bid price that is expressed in pip terms. When a currency pair does not include the USD or the EUR, it is called a cross rate currency pair. When the EUR is included in a pair it is specifically called Euro crosses.
Any kind of transaction demands a deposit to be kept by the Trader. The ratio of the contract value to the deposit is known as Leverage. The prerequisite of the opening of a position is an initial investment, Margin, which covers the credit risk that a broker is vulnerable to. The percentage margin requirement can be calculated as the inverse of Leverage value.
The most traded and liquid currency pairs are called Majors. Any kind of transaction, involving Majors, account for 90% of the total Forex trading. The EUR/USD and USD/JPY are the most important currency pairs that are actively traded. The GBP/USD rank third, whereas EUR/JPY rank fourth.
It is to be borne in mind that the Forex trading involves a high level of substantial risk to the capital. As a result of this, you might end up losing on more money than the amount you had invested. You are then advised to go
