Trading in Forex is highly based on using currency pairs, and every position that is opened in a trade consists of the simultaneous selling and buying of one currency with another. So it goes without saying that in order to trade in Forex you need to understand what currency pairs are and how they work.
Currency pairs are a combination of two different currencies paired together into a ‘Base Currency’ -The first listed currency- and a ‘Quote Currency’ – the second listed currency. The order of a currency pair cannot be changed at random. Currency pairs are always presented in their abbreviated form so a euro would be written as EUR and a US dollar would be written as USD. So a Euro U.S. dollar pair would be written as EURUSD.
The value of a currency pair is calculated by the amount with which you can buy 1 unit of the base currency. For example if with 1.39 US dollars we can buy 1 EUR the pair is valued at 1.39.
Currency pairs were fixed based upon the established ranking of the relative values of currencies which applied at the time of establishment. This ranking order is followed and the pairs never change.
The Euro was assigned by the European Central Bank as the predecessor of any other currency, and so it is always the base currency if it is a part of a pair. The rest of the currencies have an order and whichever currency is higher becomes the base currency of the pair.
Currencies were put in pairs in order to evaluate the movements of currencies directly against each other. Simply stating that a currency has moved up or down does not indicate what it has moved up or down against. It may be rising higher than one currency but still lower than the other. So when you have a pair you are evaluating how much higher or lower it is than the specific currency it is placed with.
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