Many potential and existing forex traders get confused with the concept of currency pairs and this piece of information will surely help in understanding this basic concept of foreign exchange.
If you have been into stock exchange where you buy and sell shares of companies, you will find the concept of currency pairs very easy.
In the world of stocks, shares of companies are commodities and the currency used to purchase them is money. In forex, you simply trade currencies that mean you sell a currency against another currency to make profits. It is worthwhile to note here that forex is all about pairs. The first currency in the pair is commodity and the second currency is money, if you find it easy to understand the concept with the help of stocks.
Popular currency pairs are as follows:
1. EUR/USD Currency Pair: Euro and US dollar.
2. USD/JPY Currency Pair: the US dollar and Japanese yen.
3. GBP/USD Currency Pair: British pound and US dollar.
4. USD/CHF Currency Pair: the US dollar and Swiss franc.
5. USD/CAD Currency Pair: the US dollar and Canadian dollar.
6. AUD/USD Currency Pair: the Australian dollar and US dollar.
In the first currency pair (EUR-USD), the commodity is Euro and the money is USD as you pay by United States dollars to buy Euro and the same thinking applies to all other currency pairs.
No matter in what currency your forex trading account is, you could have a forex trading account in USD, GBP, CAD, AUD, CHF, or any other currency. When you decides to buy EUR-USD, the forex broker make changes to your trading account capital into USD and then make the necessary payment for the required number of USD to buy Euro. It is worthwhile to note here that any trade in forex market has to be done through USD as this is the main currency and could be considered as the axis of all forex market transactions. However, you don't need to get into these intricacies and things can be easily managed by just clicking on the buy or sell buttons.
The crux is that if you want to make forex profits, you need to sell high and buy low and you may even opt for selling it low and buying it lower. When you are trading in forex, you take a "long" position when buying and a "short" position when selling. This means that when you buy EUR-USD, you take a long position and you take a short position when you sell USD-EUR. Long and short are just terms used in forex and have nothing to do with the length of any forex product or service.
EUR-USD is the most popular and has the highest volume of transactions in the world of foreign exchange while GBP-JPY is the king of the currency pairs for private forex traders due to high volatility and strong nature. Moreover, trading signals between GBP-JPY are sharp and strong and it has a wide movement scale.
We hope that this information on the basics of currency pairs, in the context of forex, helped you to develop a clear understanding.