Foreign Currency: Relation of Currency Pairs

There are a number of different pieces of terminology that people need to use when examining the aspects of currency pairs. These pieces of terminology include things like pips and movements and trends and a number of other different pieces of terminology that need to be understood. Just like understanding a foreign language is essential to understanding the locals of a specific place, understanding the lingo used in Forex is important for understanding not only the analysis produced by different places, but also for understanding the different tendencies of a marketplace.

One of the types of lingo that many people in the Forex trading business use is the lingo of a currency pair. People most of the time generally know what a currency pair is, but the full detail of what exactly a currency pair means might be lost on them. This article aims to explain in detail exactly what a currency pair is in its relation to Forex trading.

Currency Pair

There are a number of different currency pairs on the market today. When you go to the bank and exchange the currency in the country you live in for other currency in preparation for a trip, what you are effectively doing in that situation is looking at the two currencies as being a pair. The reason for this is as follows; suppose that you are an American citizen taking a trip to France, where their primary unit of currency is the European Dollar. So, at your local bank a few weeks before your plane ride, you exchange some American currency for some European currency. You make your way over to France and have a nice vacation and by the time you get back you still have some of your European currency left. What’s the first thing you do? For most people, the answer is to exchange that European currency for the American currency that you use in your country. You started a trade when you left and finished that same trade when you got back.

In the example shown above, the currency pair that was involved was the EUR/USD pair. This is a currency pair that is very commonly traded in the world today. The essence of the term currency pair is essentially referring to the two currencies that are being traded back and forth, but the specific currencies involve affect things like pip values, spreads and a number of other factors that are important to Forex traders. Just because this specific example was the EUR/USD currency pair does not mean that all examples have to contain either one or both of these; any two currencies can form a currency pair and be traded in Forex style.

Common Currency Pairs

Here are arguably the two most common currency pairs:

EUR/USD:

This is the currency pair listed above and tends to be most liquid during American and European market hours.

GBP/USD:

This is a currency pair that is also very volatile at times and up until the creation of the Euro, most people dealt with this currency pair primarily. It tends to be most liquid during American and United Kingdom market hours.

The difference between the Bid and the Ask price is referred to as the

.

• 1% of transaction size for account balances below $ 100,000
• 2% of transaction size for account balances up to $ 250,000
• 4% of transaction size for account balances above $ 250,000