In forex (FX) trading, currency pairs are used. A currency pair represents a combination of two different currencies, meaning one currency is evaluated against another. Generally, specific combinations of currencies known as major currency pairs are frequently traded.
For example, consider the most common currency pair, EUR/USD (Euro/US Dollar). In this currency pair, the Euro is the base currency, and the US Dollar is the quote currency. This shows how much one Euro is worth in US Dollars. For instance, if EUR/USD is 1.20, it means that one Euro is equivalent to 1.20 US Dollars.
Other major currency pairs include GBP/USD (British Pound/US Dollar), USD/JPY (US Dollar/Japanese Yen), and USD/CHF (US Dollar/Swiss Franc). These currency pairs are widely traded on exchanges and banks around the world.
Let’s look at examples of how to interpret currency pairs.
Example 1: GBP/USD = 1.40
In this case, one British Pound (GBP) is equivalent to 1.40 US Dollars (USD). This means that if you have one Pound, its value is 1.40 US Dollars.
Example 2: USD/JPY = 110.50
In this case, one US Dollar (USD) is equivalent to 110.50 Japanese Yen (JPY). This means that if you have one US Dollar, its value is 110.50 Yen.
The price of a currency pair is determined by the balance of supply and demand in the forex market. Since exchange rates fluctuate frequently, traders and investors predict these changes to make profitable trades. Understanding how to read currency pairs helps in grasping exchange rates between different currencies and making trading or investment decisions in the forex market.
