A currency pair is a foreign exchange transaction rate consisting of two currencies, represented by two ISO codes plus a delimiter, such as GBP/USD, where the first code stands for “base currency” and the other for “secondary currency.
The currencies most commonly traded in the markets are called the “major currencies”.Most currencies are bought and sold against the United States Dollar (USD).The US dollar (USD) is the most traded currency.The next five most-traded currencies are: the euro (EUR);The Japanese yen (JPY);The pound (GBP);Swiss franc (CHF) and Australian dollar (AUD).Trading in these six major currencies accounts for 90% of global foreign-exchange trading.
Exchange rates change rapidly.Supply and demand in the market determine the value of money, and the value of one currency in the foreign exchange market is expressed by another currency.In a currency pair, the first currency is called the “base currency” and the second currency is called the “account currency” or “relative currency”.
When you trade currencies, you buy the base currency and sell the denomination currency.The exchange rate tells buyers how much it will cost to buy a unit of benchmark currency.The order of currency pairs is usually the same, a common practice in the industry.For example, the currency pair USD/JPY(USD is the base currency and JPY is the denomination currency).The order of currency pairs you see does not change.So, whether you buy or sell depends on the direction of the transaction.For example: USD/JPY– You can buy JPY with USD, or buy USD with JPY.
For example: EUR/USD 1.2500 means you need $1.25 to buy one euro.In other words, if you sell 1 euro you get $1.25.All transactions involve buying one currency and selling another simultaneously.If, the next day, the euro appreciates against the dollar to 1.26, you will earn 1 cent for every euro you bought.If you trade the other way around, you lose 1 cent for every euro you sell (at 1.25) (because that euro costs you $1.26 to “buy back”)