The Basics of Forex Trading

A Crash Course in Trading Currencies

Currencies are traded in pairs because you only really know what one nation’s currency is worth if you compare it against another currency.

For example, in the last few years, you would have no idea how much the dollar fell versus the euro, Swiss franc, Canadian dollar etc. unless you compared the various currencies’ values against the U.S. dollar.

Once a Pair, Always a Pair

So many years ago, when currencies were first traded, the industry created a trading standard that’s still used today. Industry players decided how currency pairs would be quoted. For instance, if you’re trading the U.S. dollar vs. the Japanese yen, then that pair is always listed as USD/JPY, not JPY/USD. .

Let’s take a moment to review the major currencies and their symbols:

USD = U.S. dollar (nicknamed the “buck” or “greenback”)
EUR = euro (nicknamed the “anti-dollar”)
GBP = Great British pound (nicknamed “cable” or “sterling”)
JPY = Japanese yen
CHF = Swiss franc (nicknamed “the Swissie”)
CAD = Canadian dollar (nicknamed “the loonie”)
AUD = Australian dollar (nicknamed “Aussie”)
NZD = New Zealand dollar (nicknamed “Kiwi”)
SGD = Singapore dollar
HKD = Hong Kong dollar

As I mentioned before, these currencies are always listed in pairs. Just by looking a certain pair, you can tell if one currency is gaining strength or weakening vs. the second currency listed in the pair.

For example, say you wanted to know how the euro was performing vs. the U.S. dollar. First, you would look at the quote for the EUR/USD currency pair. If you see the price is going up, that means the euro is gaining strength against the greenback. If the price is falling, that means the euro is weakening and the dollar is growing stronger.
If you look at chart of a particular currency pair, you’re seeing how the first currency in the pair is performing vs. the second currency. So for instance, if the EUR/USD chart shows a line moving upward, that means that the euro is gaining strength against the U.S. dollar.
One Goes Down, the Other Must Come Up

In viewing pairs, it helps me to view them on a seesaw. See the visual below.

So when one of these goes up, the other currency must fall against it and vice versa.

Well I hope this has helped to demystify currencies. Once you get used to them, they are as easy to read as stocks.