Currency Pair
Tue, Apr 15A currency pair signifies the exchange rate between two different currencies that are traded in the foreign exchange market. Forex trading entails the simultaneous buying of one currency while selling another.
In the forex market, transactions occur in currency pairs, with each currency represented by a three-letter code. The first two letters represent the country’s name, while the third letter indicates the currency’s name, usually the first letter of the currency itself. For example, USD stands for the US dollar, and CAD represents the Canadian dollar.
In the USD/CAD pair, you are essentially purchasing the U.S. dollar by selling the Canadian dollar. The first currency in a pair is referred to as the base currency, while the second is known as the quote currency or counter currency.
Currency pairs evaluate the value of one currency in relation to another, illustrating how much of the quote currency is needed to obtain one unit of the base currency. The price of a currency pair reflects the value of one unit of the base currency in terms of the quote currency. For instance, in the EUR/USD pair, EUR is the base currency and USD is the quote currency. If EUR/USD is trading at 1.0950, it indicates that one euro is equivalent to 1.0950 U.S. dollars.
If the euro appreciates against the dollar, its value will rise, resulting in an increase in the pair’s price. Conversely, if the euro depreciates against the dollar, the price of the pair will fall. If you believe that the base currency will strengthen against the quote currency, you can take a long position (buy the pair). If you expect it to weaken, you can take a short position (sell the pair).
Discover more about currency pairs and their various types, including the “Majors” and “Minors.” A detailed list of currencies trading against the USD can be found here.
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