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Forex Currency Trading Pairs

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by Paul Bryan

In Forex, one currency is bought against selling of another currency. A quotation of two different currencies is depicted by a Currency Pair. The first currency is called the Base (or Transaction) Currency and the second one in the pair is called Quote (or Counter) Currency. It simply means how many units of a counter currency are required to buy a unit of base currency. The four most important currency pairs are USD/EUR, USD/CHF, JPY/USD, and USD/GBP.

A Euro is said to be getting Stronger than a Dollar, if for example the quotation moves from EUR/USD 1.3500 to say EUR/USD 1.3510. The reverse happens when the quote EUR/USD moves from 1.3400 to 1.3390. This is the case with regard to any Currency Pair. The Trader makes a profit when there is an increase in the Currency Pair price, provided he is with a long position (buying the 1st currency against the 2nd one) and he suffers from a loss if he is with the short position (selling the 1st currency against the 2nd currency).

The Percentage In Point (PIP) is the smallest measure of price move made by the exchange rate in the Forex trading. The USD/JPY is an exception with regard to each PIP being 0.01, which in other cases one PIP, equals 0.0001.

The Ask Price can be defined as the price at which a Trader is willing to pay and a Broker is willing to buy a currency pair. The Trader sells the currency pair at the Bid Price, which in turn is equal to the price the Broker will buy the currency pair for.

A Spread equals the difference between the Ask price and the Bid price that is expressed in pip terms. When a currency pair does not include the USD or the EUR, it is called a cross rate currency pair. When the EUR is included in a pair it is specifically called Euro crosses.

A Trader needs to deposit a certain amount during any kind of transaction. Leverage is the ratio between contract value and deposit. The initial investment, called Margin, covers the credit risk of the broker, while opening a position. The percentage margin requirement equals the inverse of the leverage value.

Majors, which are traded worldwide, form the most liquid currency pairs. Their transaction accounts for about 90% of Forex Trading. The EUR/USD and the USD/JPY form the most important currency pairs of all that are traded actively. The GBP/USD currency pair is ranked 3rd, followed by the EUR/JPY, ranked 4th.

The Forex and Contract for Difference Trading involves a high level of risk to your capital investments. This makes it possible for you to lose out on money and hence prove to be unsuitable for certain traders. You should thus seek advice from people who are already into this and carefully go through all Risk Warning Notices.

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