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CURRENCY TRADING BASICS

CURRENCY PAIRS

All currencies are assigned an International Standards Organization (ISO) code abbreviation. In currency trading, these codes are often used to express which specific currencies make up a currency pair. For example, USD/JPY refers to two currencies: the US Dollar and the Japanese Yen.

EXCHANGE RATE

An exchange rate is simply the ratio of one currency valued against another. The first currency is referred to as the base currency and the second as the counter or quote currency. If buying, an exchange rate specifies how much you have to pay in the counter or quote currency to obtain one unit of the base currency. If selling, the exchange rate specifies how much you get in the counter or quote currency when selling one unit of the base currency.

USD/JPY
base currency/quote currency

SPOT FOREX

Spot foreign exchange is always traded as one currency in relation to another. So a trader who believes that the dollar will rise in relation to the Euro, would sell EUR/USD. That is, sell Euros and buy US dollars. The following is guide for quoting conventions:

Currency Pairs - Exchange rate relationship between two currencies, where one currency is expressed in terms of the other. For example, USD/DEM (US dollar against German mark) is a currency pair.

Base Currency- The base currency is first currency in any conventionally quoted currency pair. Thus in EUR-USD, Euro is the underlying currency; in USD/JPY it is the US Dollar; while in EUR/JPY, it is again Euro.

Forex Symbol Guide

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