Currency Pairs in the Forex Market
Currency pairs refer to the trading of two currencies in the forex market. In every currency pair, there are two currencies, such as USD/EUR, USD/JPY, GBP/USD, and so on. The first currency in the pair is called the base currency, and the second currency is called the quote currency. For example, in the USD/EUR pair, the USD is the base currency, and the EUR is the quote currency.
The value of a currency pair is determined by the exchange rate between the two currencies. Exchange rates constantly fluctuate based on various economic and geopolitical factors, such as interest rates, political stability, inflation, and trade policies. Traders in the forex market use currency pairs to speculate on the direction of exchange rates and profit from the price movements.
Trading in currency pairs involves buying one currency and simultaneously selling another currency. For instance, if a trader buys USD/EUR, it means they are buying USD and selling EUR. If the exchange rate of the pair increases, the trader can sell their position and make a profit. On the other hand, if the exchange rate falls, the trader will incur a loss.
