2 – Understanding The Currency Pairs


We all know about the stock market. What happens in this market? The shares of companies are traded there. Similarly, in the commodity market, commodities like precious metals, oils, natural gas, etc. are traded. And finally, in the Forex market, currencies are traded.

What is traded in the Forex market?

The Foreign Exchange market is the market where a country’s currency is traded. And, as the currency is a country’s refection of the economy, it is the largest market in the world in terms of volume traded. This market determines the currency’s foreign exchange rate as well.

How exactly to trade a country’s currency?

In the Forex market, currencies are traded in pairs. To buy a currency, you will have to give away (sell) another currency. Let us understand this with a real-life example. Let’s say you have moved from the US to the UK. Now, if you want to make any purchases in this country, you will have to deal with the UK’s currency. So, you will have to go to a Forex exchange agent and sell your US dollar to buy Great Britain’s pound. Hence, you have completed a trade in the foreign exchange. Notice that, during the trade, you have dealt with two currencies, the US dollar and Great Britain pound.

Coming to the Forex market, the exact process is carried out. However, the only difference is that the trade in the Forex market happens online, not physically. Now, if you want to make the same physical trade in the Forex market, you must buy the pair GBP/USD. Buying GBP/USD basically means that you are purchasing the Great Britain pound and indirectly selling the US dollar. Note that, all of this is happening virtually. Also, as an extremely large volume of currency is traded in this market, it determines the foreign exchange value of the currency.

What are the major currency pairs that are extensively traded in the Forex market?

There are loads of currencies that are traded in the Forex market. However, some currencies, which are highly liquid and volatile, are preferred by many traders and referred to as major currencies.

Below is the list of the major currencies and its symbolic representations

We can see that every currency has a three-letter symbol. The symbol is derived as follows:

The first two alphabets represent the country’s name, and the third alphabet represents its currency name. For example, considering the currency USD, US is derived from the United States and D is derived from Dollar.

Now, if you think you’ve gained some valuable information, go ahead and take up the quiz below.

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