Forex (forex) trading takes place in pairs where one currency is bought against the sale of another. The first of the two currencies in a pair is called the base currency, while the second currency is known as the quote currency. It is a way of comparing the value of one currency with that of another currency, meaning the base currency against the quote currency. It shows how many units of the bid currency are needed to buy the base currency.
Currency pairs are traded in the foreign exchange market – better known as the forex market. The forex market enables traders to buy, sell and exchange foreign currencies. The market also facilitates the conversion of currencies for global trade and investment.
How does a currency pair work?
In the forex market, a currency pair can be bought or sold as a single unit. By buying one currency pair, you get the base currency and sell the other. Similarly, as a trader sells a currency pair, they sell the base currency and receive another (quote) currency.
The two prices relevant in forex trading are the ‘Bid’ price and the ‘Ask’ price. When a forex broker buys the base currency from a trader in exchange for the bid currency, he pays the ‘bid’ price. On the other hand, when a broker sells the base currency to a trader in exchange for the bid currency, the price at which he sells is known as the ‘Ask’ price.
most popular forex pair
One of the most commonly traded currency pairs is the Euro and the US Dollar, which in forex trading parlance is represented as EUR/USD. The EUR/USD quote is equal to 1.15 i.e. one Euro can be bought for 1.15 US Dollars. In other words, 100 euros can be bought for $115 US dollars. In this pair, the euro is the base currency and the US dollar is the counter (or quote) currency.
There are many currency pairs that trade in the forex market. The most commonly traded currencies against the US dollar are known as major currencies.
As we summarize, we can highlight that forex trading takes place in currency pairs in the forex market. A pair consists of a base currency and a quote currency. When a pair is bought, the base currency is bought in exchange for the quote (or quote) currency.
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