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  • Trading Forex

    Understanding Forex pairs and quotes

    A unique 3-letter code is assigned to each currency. A currency is always traded against another currency, and so forex prices are quotes in “pairs”, for example GBP/USD. The currency to the left is known as the base currency, and the one on the right is called the quote currency. A forex price quote shows how many units of the quote currency (USD) can be bought with the base currency (GBP). For example if GBP/USD is quoted at 1.35069, then £1 can buy $1.35069. A speculator who believes GBP will strengthen relative to USD would buy (go long) GBP/USD. When entering a forex position, a trader simultaneously buys one currency while selling another currency. In our example, the trader would simultaneously buy GBP while selling USD.

    Major and minor pairs

    The vast majority of global currency transactions take place with six pairs. These are known as the ‘majors’. Pairs less frequently traded are known as minor or ‘exotic’ pairs.

    Understanding forex price movements

    The smallest price increment for forex is known as a pip. For example, if GBP/USD increases from 1.35060 to 1.35070, this is a rise by 1 pip. Look at the fourth decimal place to determine this. In our example, this is a rise from 6 to 7. The exception to this rule is for yen pairs where the second decimal place is used to determine the rise or fall in pips.

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