The Basics Of Currency Trading

When a particular quotation involves two currencies then it is called a currency pair. You will always find a currency exchange rate in a given currency pair. An International Standards Organization code is assigned to all currencies and these codes denote the currencies that form the pair. A good example would be, EUR/USD that denotes The Euro and The U.S. Dollar.

Base Currency And Counter Currency

The base currency is the first currency in the currency pair and the counter currency or the quote currency is the second. It is a wise idea to know that the value of a base currency always stands as 1. The easiest way to remember this would be to ask yourself, “How many units of the counter currency will 1 unit of the base currency buy?”

How does currency trading take place?

A trader looking to make money in currency trading buys a currency pair while making an assumption that either the price of the base currency will go up in comparison to the quote currency or the exchange rate will go up. simultaneously, a trader who sells a currency pair usually does it with a hope the value of the base currency will decrease in comparison to the quote currency or the value of the quote currency will increase in comparison to the base currency.

Forex trading and currency pairs

In Forex trading, it is usually about buying one of the currency pairs and selling the other. So ideally, if someone is buying a currency pair, he or she will buy the base and sell the quite currency. The base currency is sold at a price known as the bid currency. The base currency is bought at a price known as the ask currency. It is a usual thing to note that the value of the base currency is always lower than the ask currency. This difference in price of the two currencies is the spread that often becomes the commission of the Forex broker.

Which currencies are popular?

The currencies that are high on liquidity and are from politically stable countries are the ones that are most popular. Due to the power and size of the United States Of America, its currency, the U.S. Dollar enjoys the position of the most tradable currency in the world.

If in a particular currency pair, the U.S. Dollar is the base currency and the currency quote rises up then it means that the value of the Dollar has gone up while the other currency has gone down in terms of value.

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