The reason they are quoted in pairs is that, in every foreign exchange transaction, you are simultaneously buying one currency and selling another. How do you know which currency you are buying and which you are selling? Excellent question!
This is where the concepts of base and quote currencies come in… Base and Quote Currency Whenever you have an open position in forex trading, you are exchanging one currency for another. Currencies are quoted in relation to other currencies.
Here is an example of a foreign exchange rate for the British pound versus the U. The base currency is the reference element for the exchange rate of the currency pair.
“Long” and “Short”
It always has a value of one. The second listed currency on the right is called the counter or quote currency in this example, the U.
By Matt Lee Updated Sep 20, Investors can trade almost any currency in the world through foreign exchange forex. In order to make money in forex, you should be aware that you are taking on a speculative risk. In essence, you are betting that the value of one currency will increase relative to another. The expected return of currency trading is similar to the money market and lower than stocks or bonds. However, it is possible to increase both returns and risk by using leverage.
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy ONE unit of the base currency. In the example above, you have to pay 1. When selling, the exchange rate tells you how many units of the quote currency you get for selling ONE unit of the base currency.
In the example above, you will receive 1. You would sell the pair if you think the base currency will depreciate lose value relative to the quote currency.
With so many currency pairs to trade, how do forex brokers know which currency to list as the base currency and the quote currency? Fortunately, the way that currency pairs are quoted in the forex market is standardized. Just know that this is a matter of preference and the slash may be omitted or replaced by a period, a dash, or nothing at all.
They all mean the same thang. If you want to buy which actually means exchange market how to make money on it the base currency and sell the quote currencyyou want the base currency to rise in value and then you would sell it back at a higher price.
If you want to sell which actually means sell the base currency and buy the quote currencyyou want the base currency to fall in value and then you would buy it back at a lower price.
Below is a complete guide to starting trading forex. The market is liquid hours a day, 5-days a week, opening in the evening on Sunday during North American trading hours and closing at 5-pm on Friday evening during the same time zone. If you are a beginner and just dipping your toe into trading the forex markets, you should consider following the market and increasing your understanding of why exchange rates move before risking your hard-earned capital. Learn About the Financial Markets The financial markets allow investors, businesses, governments and central banks a place to transact in an open market, exchanging their risks to meet their financial needs.