Understanding Forex Trading Currency Pair

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Forex Jargon – As huge as the market of currency exchange it is today, the markets have their own language or terms used commonly in their commentary. This type of language has been the biggest factor and confusion among beginner’s forex traders. Let’s have a look at some of the commonly used terms in fx trading in this section.

Currency Pair

Currency pair is the first thing people notice and ask about when introduced to forex trading. When a currency is quoted or paired, it is done in relation to another currency. When you think of one currency, for example a US Dollar ($1) compared to all other currencies worldwide, that is what currency pair refer to, the pair is made up of the base and quote currency. Currency pair is quoted like this – US/ZAR = 13.48 –  which means the currency name on the left will be your base currency and currency after the forward slash will become your counter currency. In the case of South African Rand in the example above, ZAR13.48 is equivalent to the 1 US Dollar. So the forex quote includes the currency abbreviations fr the currencies in question.

There are two ways to quote a currency pair, through directly or either indirectly. Investopia define direct currency quote as simply a currency pair in which the domestic currency is the quoted currency; while an indirect quote, is a currency pair where the domestic currency is the base currency. So if we look at examples of looking at the South African Rand as a domestic currency compared with the United States Dollar, the quote will look like this ZAR/USD while indirect quote would be USD/ZAR.

You don’t even need to have one currency to trade another, you don’t have to have the US dollars in order buy the EUR currency – EUR/US, you can start out with ZAR to buy euros – EUR/US in which your currency will automatically be converted into US dollars used to buy the euros.

Source:
http://www.investopedia.com/university/forexmarket/forex2.asp
http://en.tradimo.com/learn/forex-trading/forex-terminology/

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