BEGINNER’S BASICS ON TRADING PAIRS

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Table of Contents

DETAILED BASIC OF TRADING PAIRS

What is a currency pair?

When you trade, you are trading currency in pairs, not as a standalone. We trade one currency for another currency. Currency pairs help you measure a currency’s value against another currency.
For an example: EUR/USD
Here we are buying EURO CURRENCY and selling the US Dollar, so basically we are giving the other party US Dollars in exchange for the Euro currency.

What is a base currency?

This is the first currency that appears in a currency pair.
example: EUR/USD
EUR is the base currency

What is a quote currency?

This is the second currency that appears in a currency pair.
example: EUR/USD
USD is the quote currency

What is the purpose of Base and Quote Currency?

The main purpose of the base and quote currency is to tell you how much it cost (in quote currency) to buy one base currency.
example:  EUR/USD @ 1.3500
This tells you that how much it will cost you for 1 EUR = $1.35 USD

3 different Type of Currency Pairs:

Major Currency pairs

Refers to the most traded currency pairs in the world.
examples: EUR/USD, GBP/USD, USD/CAD, USD/JPY, USD/CHF, AUD/USD, NZD/USD.
These are the seven currency pairs you may want to consider starting to trade first because they are usually have lower transaction costs due to lower spreads and you get less slippages when trading with these seven most popular currency pairs.

Cross currency pairs

Refers to currency pairs which are non-USD.
examples: Euro crosses: EUR/GBP, EUR/AUD, EUR/NZD
Pound crosses: GBP/JPY, GBP/AUD, GBP/NZD
Yen crosses: AUD/JPY. NZD/JPY, GBP/JPY

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Exotic currency pairs

Refer to when one major currency paired with a deveping country’s currency.
example: USD/MXN, EUR/TRY, INR/GBP

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