This is how forex work.
- Forex trading is the simultaneous buying of one currency and selling of another
- Two currencies make up what is known as a “currency pair”. For example the euro and the U.S. dollar (EUR/USD) or the British pound and the Japanese yen (GBP/JPY).
- Currencies are always traded in pairs – each currency is represented by three letters
- The first two letters represent the country and the third letter identifies the currency
- Forex pairs are read in the opposite direction of mathematical proportions or ratios
For example:
GBP/USD = 1.23450
The currency to the left of the slash (“/”) is called the base currency (in this example, the British Pound) and the currency on the right is called the quote currency (in this example, the U.S Dollar)
This notation means that 1 unit of the base currency (that is, 1 GBP) is equal to 1.23450 U.S Dollars
You have to pay 1.23450 U.S Dollars to buy 1 GBP
If selling, the foreign currency exchange rate specifies how much units of the quote currency you get for selling one unit of the base currency
In the above example, you will receive 1.23450 U.S Dollars when you sell 1 GBP.
The list below are the most liquid and widely traded currency pairs in the world and are called major pairs.
CURRENCY PAIR | COUNTRIES | FX GEEK SPEAK |
---|---|---|
EUR/USD | Eurozone / United States | “euro dollar” |
USD/JPY | United States / Japan | “dollar yen” |
GBP/USD | United Kingdom / United States | “pound dollar” |
USD/CHF | United States/ Switzerland | “dollar swissy” |
USD/CAD | United States / Canada | “dollar loonie” |
AUD/USD | Australia / United States | “aussie dollar” |
NZD/USD | New Zealand / United States | “kiwi dollar” |
When to Buy?
A trader would open a buy position if they believe that the value of that specific base currency would increase.
When to Sell?
A trader would open a sell position if they believe that the value of that specific base currency would decrease.
Trading sessions according to GMT (Greenwich Mean Time):
Region | City | Open(GMT) | Closed(GMT) |
---|---|---|---|
Europe | London | 8:00 am | 5:00 pm |
America | New York | 1:00 pm | 10:00 pm |
Asia | Tokyo | Midnight | 9:00 am |
Pacific | Sydney | 10:00 pm | 7:00 am |
Trading sessions according to EST (Eastern Standard Time):
Region | City | Open(EST) | Closed(EST) |
---|---|---|---|
Europe | London | 3:00 am | 12 noon |
America | New York | 8:00 am | 5:00 pm |
Asia | Tokyo | 7:00 pm | 4:00 am |
Pacific | Sydney | 5:00 pm | 2:00 am |
Trading hours may vary with daylight savings time.