Currency Pairs

In Forex, currencies are quoted in pairs. This is because a currency can only be valued in relation to another currency. For example, if you ask how much one US dollar is worth in US dollars, the answer is obviously 1 dollar. But if you ask how much one US dollar is worth in euros, the answer might be 0.76 € (at the time of writing). This is why currencies are quoted in pairs: the value of a currency can only be determined when compared to another currency.

When trading Forex, you are performing a simultaneous two-sided operation: buying one currency and selling another, or vice versa. Buy and sell operations occur simultaneously and only make sense as such in Forex.

So, what exactly is a currency pair in Forex? For example, one British Pound currently equals 1.65 US dollars.

This can be expressed in shorthand as:

GBP/USD = 1.35000

Simple, right?

In a currency pair, the first currency is known as the base currency, and the second currency is the quote currency. Using GBP/USD as an example: GBP is the base currency, and USD is the quote currency. The exchange rate simply tells you how much one unit of the base currency is worth when exchanged for the quote currency.

Another example: the exchange rate for the euro against the US dollar:

EUR/USD = 1.2200