Pairs and quotes

Forex is the market for exchanging one currency for another. Prices are always quoted in pairs.

Reading a pair

In EUR/USD, the euro is the base currency and the US dollar is the quote currency. A price of 1.1200 means one euro costs 1.12 US dollars.

• Buy EUR/USD if you expect the euro to rise against the dollar.
• Sell EUR/USD if you expect the euro to fall against the dollar.

The major pairs

The majors all include the US dollar and are among the most traded pairs:

• EUR/USD, GBP/USD, USD/JPY
• USD/CHF, AUD/USD, USD/CAD, NZD/USD

They tend to have tighter spreads than less-traded pairs, which is why we focus on them. That does not make them low risk.

Bid, ask and spread

Your platform shows two prices. You buy at the higher ask and sell at the lower bid. The difference is the spread. Every trade starts slightly behind because of it.

Retail forex and CFDs

Most retail forex trading uses leverage, often through CFDs or similar products. You are not exchanging currency for a holiday, and losses can build quickly relative to your deposit.

Key point

A currency pair is a comparison of two economies. A pair can rise because the first currency got stronger or the second got weaker.