So far I have showed you what the Forex market is and Forex market hours. Now it’s time to look at what is actually traded in Forex, currency pairs.
You already know the US Dollar, the British Pound and the Euro. All three of these currencies are traded in Forex. To make things easier on trader, banks and brokers use an ISO code for each currency. An ISO code is a simple abbreviation of the currencies name, USD for the US dollar, GBP for the British pound and EUR for the Euro.
Generally speaking, currency codes are easy to remember. However, there are a few tricky ones like the Swiss Franc which has an ISO code of CHF. Below there is a table with all the major currencies and their currency codes.
| Country | Currency | Sign | Commonly Called | Code |
|---|---|---|---|---|
| United States of America | U.S. Dollar | $ | Dollar | USD |
| Great Britain | Pound | £ | Sterling | GBP |
| Europe | Euro | € | Euro | EUR |
| Japan | Yen | ¥ | Yen | JPY |
| Australia | Australian Dollar | $ | Aussie Dollar | AUD |
| Switzerland | Swiss Franc | ₣ | Swiss Franc | CHF |
| Canada | Canadian Dollar | $ | Loonie | CAD |
| New Zealand | New Zealand Dollar | $ | Kiwi | NZD |
There are many more currencies, but as a new trader you will want to stick to the most liquid and frequently traded currencies. Also, these currencies are amongst some of the cheapest currencies to trade, purely because they are traded so frequently.
Currency pairs
In Forex, currencies are quoted in pairs. This is because you can only value a currency relative to other currencies.
If you ask how much one US dollar worth in US dollars, the answer is of course $1. However, if you ask how much one US dollar is worth in Euros the answer would be €0.76 Euros (at the time of writing). This is why currencies are quoted in pairs. You can only assess the value of a currency when it is paired with another currency.
So, what exactly is a currency pair in Forex? It’s simply and abbreviation of a sentence like this one.
One British Pound is currently worth 1.65 U.S. dollars.
This is abbreviated to.
GBP/USD = 1.6567
Simple right? Currency pairs allow us to quickly see one currencies value relative to another.
When looking at a currency pair, the first currency is known as the base currency, the second as the quote currency. Using GBP/USD as an example, GBP is the base currency, and USD is the quote currency. The rate is simply how much of one unit of the base currency is worth when exchanged for the quote currency. So, take a look at the currency pair and rate below.
EUR/USD = 1.3137
EUR is the base currency, USD is the quote currency, and €1 is worth $1.3137 US.
Currency Pairs you should know
Major Pairs
| Currency Pair | Countries | Commonly Called |
|---|---|---|
| EUR/USD | Euro/United States | euro dollar |
| GBP/USD | UK/United States | pound dollar |
| USD/JPY | United States/Japan | dollar yen |
| USD/CHF | United States/ Switzerland | dollar swissy |
| USD/CAD | United States/Canada | dollar cad |
| AUD/USD | Australia/United States | aussie dollar |
| NZD/USD | New Zealand/US | new zealand dollar |
Yen Cross Pairs
| Currency Pair | Countries | Commonly Called |
|---|---|---|
| EUR/JPY | Euro/Japan | euro yen |
| GBP/JPY | UK/Japan | pound yen |
| AUD/JPY | Australia/Japan | aussie yen |
| NZD/JPY | New Zealand/Japan | kiwi yen |
| CHF/JPY | Switzerland/Japan | swissy yen |
| CAD/JPY | Canada/Japan | cad yen |
Pound Cross Pairs
| Currency Pair | Countries | Commonly Called |
|---|---|---|
| GBP/CHF | UK/Switzerland | pound swissy |
| GBP/AUD | UK/Australia | pound aussie |
| GBP/CAD | UK/Canada | pound cad |
| GBP/NZD | UK/New Zealand | pound kiwi |
Euro Cross Pairs
| Currency Pair | Countries | Commonly Called |
|---|---|---|
| EUR/GBP | Euro/UK | euro pound |
| EUR/AUD | Euro/Australia | euro aussie |
| EUR/CAD | Euro/Canada | euro cad |
| EUR/CHF | Euro/Switzerland | euro swissy |
| EUR/NZD | Euro/New Zealand | euro kiwi |
Other Cross Pairs
| Currency Pair | Countries | Commonly Called |
|---|---|---|
| AUD/CHF | Australia/Switzerland | aussie swissy |
| AUD/CAD | Australia/Canada | aussie cad |
| AUD/NZD | Australia/New Zealand | aussie kiwi |
| CAD/CHF | Canada/Switzerland | cad swissy |
| NZD/CHF | New Zealand/Switzerland | kiwi swissy |
| NZD/CAD | New Zealand/Canada | kiwi cad |
Using Currency Pairs to Take Long or Short Trades
In the Forex market you can both buy and sell currencies. This is typically called going Long (buying) or going Short (selling). And, you can make profit from selling!
So far you should know, when looking at GBP/USD:
GBP is the base currency.
USD is the quote currency.
This means that 1 GBP is worth whatever the exchange rate is at the time of USD’s.
When you trade a currency pair you are effectively doing the following:
Long or Buy = Buying the base currency and selling the quote currency.
Short or Sell = Selling the base currency and buying the quote currency.
This means if you think the value of GBP is going to increase in relation to the value of USD, then you’d buy the currency pair. You’d also buy the pair if you think USD is going to weaken in relation to GBP. This is because you will now get more US Dollars for 1 pound.
On the other hand, if you think GBP is going to weaken in relation to USD then you’d sell the currency pair (equivalent of selling GBP and buying USD). You’d also sell the pair if you thought USD was going to strengthen against GBP. Then when the pair has fallen, you buy it back at the lower price and pocket the profit (buying GBP and selling USD).
If this is still confusing, don’t worry. You will learn more about this in coming articles.