What is a currency pair and how does it work? MintGenie tells you

Currency (forex) trading occurs in pairs where one currency is bought against the sale of another. The first of the two currencies in a pair is called the base currency, while the second currency is called the quote currency. It is a way to compare the value of one currency with another i.e. the base currency against the quote currency. It shows how many units of quote currency are needed to buy the base currency.

Currency pairs are traded on the foreign exchange market – known as the forex market. The foreign exchange market allows traders to buy, sell and exchange foreign currencies. The market also facilitates currency conversion for global trade and investment.

How does a currency pair work?

In the forex market, a currency pair can be bought or sold as a unit. When buying a currency pair, you receive the base currency and sell the other. Similarly, when a trader sells a currency pair, he sells the base currency and receives the second (quote) currency.

Two relevant prices in forex trading are the “bid” price and the “ask” price. When a forex broker buys a base currency from a trader in exchange for a quote currency, he pays the “bid” price. On the other hand, when a broker sells the base currency to a trader in exchange for a quote currency, the price at which he sells is called the “ask” price.

Most popular currency pair

One of the most commonly traded currency pairs is the Euro and the US Dollar, denoted as EUR/USD in forex trading lingo. The EUR/USD quote equals 1.15 means that one euro can be bought for 1.15 US dollars. In other words, 100 euros can be bought for 115 US dollars. In this pair, the euro is the base currency and the US dollar is the counter (or quote) currency.

There are dozens of currency pairs that are traded on the forex market. The currencies most traded against the US dollar are called the major currencies.

Summarizing, we can point out that foreign exchange trading takes place in currency pairs in the forex market. A pair consists of a base currency and a quote currency. When a pair is bought, the base currency is bought in exchange for a quote (or quote) currency.

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