subject: Forex Currency Trading: How to Buy and Sell Currency Pairs [print this page] Forex Currency Trading: How to Buy and Sell Currency Pairs
First of all, currency pairs are what traders refer to the two currencies being traded against each other. There are major currency pairs, which are the currencies often traded in Forex and the cross currency pairs, which basically is any kind of currency that do not have the US dollar.
Major currency pairs are EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD. These pairs are considered major currencies because they are often the ones used by many traders all over the world in buying and selling currencies. Of course, the rest fall under the cross currency pairs.
As a trader, your broker will show you the currency pair with the exchange rate. The currency pair is composed of the base currency and the counter or quote currency. Take for example, EUR/USD; EUR is the base currency where USD is the counter currency. In trading, you will be shown the exchange rate for (as an example) EUR/USD = 1.5432, this means that you can buy 1EUR for a price of 1.5432USD. So, you need 1.5432USD to buy 1EUR. This principle is congruent with selling currency pairs; you will gain 1.5432USD if you sell 1EUR. Another thing you need to understand in Forex Currency Trading is the bid and ask price. If you take a look at the given currency pair a while ago, you will see the EUR is paired with USD, right? On your trading software, your broker will show this to you as EUR/USD = 1.5432/33. 1.5432 is the bid price while 33 is the ask price. The bid price is what your broker is willing to pay for the currency pair that you are selling, thus you will earn 1.5432. The ask price, on the other hand, is the price that your broker will sell and which you need to pay to buy the currency pair. It is often the ask price that is higher than the bid price and the difference is often rather small. The slash that you see between the currency pair is called the spread. The spread will represent the cost you need to deal with the broker when buying and selling currency pairs. It is also important to know that brokers do not offer the same spread, which is why it is up to you to see who offers the best spread because this is where you can gain your revenues from.
