Forex currency symbols and pairs explained
However, the currencies of a few countries are the most actively traded, and constitute, by far, the largest volume of trades. The currencies are unambiguously identified by codes that have been standardized by the International Organization for Standardization ISO. The ISO standard for currencies is ISO , listing both the alphabetic code and numeric code of over currencies, including any minor units of the currency, which is the smallest subdivision of the currency.
However, the ISO uses a strange method for depicting the minor unit of a currency. It uses the log base 10 of the number of minor units equal to one unit of the currency. In fact, most currencies have a minor currency code of 2. The format of the 3-letter alphabetic code: As you can see, each of this symbols ends in " D ", which designates the dollar name.
However, sometimes the country name or currency that is symbolized is not the most common name. In addition to currencies, 4 metals — sometimes referred to as either forex metals or FX metals — can also be traded in forex accounts.
Their symbol is formed by appending the element symbol with the letter X:. A 3-digit numeric code is also specified for each currency to facilitate the representation of the currencies in computer systems and to identify currencies for countries that do not use a Latin alphabet.
For instance, USD has a numeric code of One of the purposes of money is as a convenient form of barter. Money is desired not so much for the thing itself, but what it can be exchanged for.
Thus, in virtually every transaction, money constitutes one side of the transaction. Thus, money is exchanged for a car, for groceries, for services, and so on. Because money is the universal barter, everything else is measured in terms of it. Both prices are expressed as the amount of money that would have to be given in exchange for the item.
However, there is an equivalent way of thinking about these transactions that allows a better understanding of currency exchanges. Buying a loaf of bread for 2 dollars is the same as selling 2 dollars for a loaf of bread. In other words, it is nothing more than an exchange.
Since money is the medium of exchange, everything is priced in terms of money. But when you buy currency, then both items exchanged are money. When you are looking at currency quotes, it is important to understand the format of the quote. Currency is always quoted in pairs. The 1 st quote is for the base currency , and is a unit of that currency.
The 2 nd currency is the quote currency aka counter currency , which is the amount of the currency equal to a unit of the base currency. Find the approximate foreign exchange rate quickly by typing the currency pair in the search box for Google example: The 2 search engines do not always provide the same quote, so just use it as a quick approximation.
In forex, there is a standard in assigning the base currency to a currency pair, so when currencies are quoted, the currency with higher priority is the base pair. The priority of the major currencies is as follows:.
These currencies are considered to be the major currencies — sometimes referred to simply as the majors — while all other currencies are considered to be minor currencies — sometimes simply referred to as minors. Forex quotes of a major currency and a minor currency will usually list the major currency as the base currency. However, in certain situations, other types of quotes may be more desirable, and the media may report different quotes. The main advantage of these different types of quotes is that the base currency or quote currency remains the same for different currency pairs, regardless of the currency priority.
Currency futures in the US are also reported as American quotes. There are 4 major types of currency quotes:. When you buy something in a store in the United States, the smallest unit of price is 1 cent. This is because the coin with the least value is the penny, and so it would not be possible to sell or buy something for less than that, if only a single item is purchased, as is usually the case.
However, because the quote currency is valued as a unit of the base currency, which makes it easier to compare different currency values and changes in currency values, and because a large amount of currency is usually traded, a smaller unit of measurement is convenient in expressing currency prices.
This smaller unit is called a pip , which is equal to. For US traders, a pip value in another currency must be converted to US dollars. A well known exception to the value of a pip is the Japanese yen. Thus, most currency quotes are expressed by 4 significant digits, and the Japanese yen is expressed to 2 significant digits. The pip is the smallest value quoted by brokers and dealers.
However, larger transactions may be reported to 5 or 6 decimal places. Prior to , exchange rates were expressed to 4 decimal places, equal to the number of pips. When you buy stocks on a stock exchange, you pay cash for those stocks. You can choose to use any kind of currency the exchange allows, but you have to keep an eye on the value of the cash you are using to make sure you have enough to buy the securities you want.
But what do you use to buy money? Forex trading is a market that buys and sells international currency, and you need to understand the very basics of Forex if you ever hope to be successful with it. The most basic components of a Forex market are currency pairs.
This is where you use one currency to buy or sell another. The process is a little complex, but it is not impossible to learn. Every Forex broker has a currency pairs list they use to transact business.
All Forex transactions are done in pairs, which means that you cannot simply buy a single currency. You must leverage one currency against another in order to complete an acceptable transaction. The two currencies together are called a currency pair and understanding currency pairs is your key to understanding Forex markets.
A currency pair is listed by your broker as two currencies side by side. In this currency pair, the U. S dollar is the base currency because it is the currency listed on the left. Some people refer to this as the currency that is listed first. In our example currency pair, the Euro is the quote currency. You may also see the quote currency listed as the second currency with some brokers. The USD-EUR currency pair is one of the most traded currency pairs in the Forex world, so you will see this a lot when you start dealing in Forex markets.
Buying and selling currency pairs has its own lingo and its own process. Once again, in order to understand the basics of Forex trading , you must understand the basics of buying and selling currency pairs. A Forex bid the number of units of the quote currency you will need to accumulate to purchase one unit of the base currency.
Buying currency is also called "going long" on that currency.