The foreign exchange (Forex) market is the largest financial market in the world. With a daily average volume of about $6.6 trillion and worth over $2.4 quadrillion as of 2021, Forex is a decentralised global market for trading currencies.
All trading in the Forex market is done with currencies in pairs. The process involves you buying one currency and selling another with the goal of making a profit through their price differences. As of now, there are over 170 currency pairs in the Forex market.
Since the entirety of Forex trading is based on the buying and selling of currency pairs, it is necessary to have an in-depth understanding of them and how they work in order to start Forex trading. Let’s take a look:
A currency pair involves two different currencies, often separated by a forward slash (‘/’), in which the value of the first currency is quoted against the value of the second currency.
In Forex, currencies are written in pairs to compare the value of one currency (generally, the base currency) to another currency (the international currency). It indicates how much of one currency is required to buy a single unit of the other currency.
What are base and quote currencies?
Base currency: It is the first currency that appears in a Forex pair.
Quote currency: It is the second currency appearing in a Forex pair.
The value of the base currency is quoted against the value of the quote currency.
For example, if we take EUR/USD, the value of EUR will be quoted against the value of USD. This depicts how much USD is needed to purchase 1 EUR.
Forex traders buy the base currency and sell the quote currency in exchange. Similarly, you can buy currency pairs from different countries and also sell them in the Forex market. You can also convert them for international investment and trade.
What are the bid and ask prices?
Currency pairs have exchange rates that are based on their bid and ask prices.
Let us look at an example with GBP/USD. Let’s say you want to exchange GBP for USD.
The exchange rate is 1.5, which means that one unit of USD is equal to 1.5 units of GBP, or $1 is required to purchase £1.5. In this case, GBP is the base currency, and USD is the quote currency.
If 1 GBP = 1.3 USD / 1.5 USD, that means that the higher USD price ($1.5) is the cost of purchasing a single GBP. If you wish to sell the GBP you already have, you can sell it at the lower price of $1.3.
Whenever you buy a currency pair, you use the base currency in order to sell the quote currency. However, you sell the base currency and get the quote currency in return when you sell the currency pair.
As per our example above, consider the currency pair price of GBP/USD = 1.5/1.6. Here, 1.5 is the ask price, and 1.6 is the bid price. In order to buy a unit of GBP, you will have to pay 1.6 USD. However, if you wish to sell GBP, you will receive 1.5 USD.
You may buy this currency pair if you have a notion of GBP increasing in value against USD in the future. Buying the pair means going long, whereas selling the pair means going short. The pair will be sold if you believe GBP will weaken against USD.
The major currency pairs are the most liquid and heavily traded among all currencies. There are 7 major currency pairs in the Forex market:
The other types of important currency pairs are as follows:
Here is a stepwise guide on how you can trade currency pairs:
Open a Forex account
Once you open a Forex account with Blueberry Markets, you can deposit the funds and start trading currencies.
Choose a currency pair
There are more than 170 currency pairs you can trade, which includes major, minor, and exotic pairs.
Develop your Forex trading strategy
It is essential that you devise a Forex trading strategy before opening a position in a market.
Currency pairs are an important part of Forex trading. Beginner traders must understand them completely before entering the market. With the proper research about the different country’s conditions and economic situations, a trader can make well-informed decisions in the market.
With Blueberry Markets, you can trade a vast number of currency pairs with complete reliability, scalability, and transparency.
Sign up for a trading account today to get started.
MetaTrader 5, the powerful automated trading platform, offers advanced tools for successful trading analysis and trades in the financial markets. Aside from Forex, the MT5 platform helps you trade Stocks, CFDs, and Futures. It has numerous order types and execution modes that allow traders to use custom trading strategies even when their machine is not online.
An advanced trading platform, MT4 has become a norm for seasoned Forex traders as it helps them execute their trades even when their machine is off. It comes with a user-friendly interface, numerous technical analysis tools for forecasting market patterns, real-time currency price data, and much more.
A spread is a cost built into the buying and the selling price of all the currency pairs. In most cases, Forex spreads depend on your Forex broker...
Major players in the Forex market are financial institutions including commercial banks, central banks, money managers along with hedge funds. Many global corporations also trade in Forex to hedge currency risk.
As the largest financial market globally, Forex trading is one of the most popular investment avenues for many. The liquidity and huge trading volume make Forex trading an option worth exploring.
Many people want to get into Forex trading and make quick profits, but only a few even know how to start. While trading Forex online has now become easier than ever because of powerful platforms like Blueberry Markets, it can still feel incredibly overwhelming to get started with it.
In case you are wondering isIn case you are wondering is Forex trading profitable, the short answer is yes. But many opt for Forex traders to make fast profits since Forex markets are operational 24 hours for five days a week.
In terms of trading volume, the Forex market is the largest financial market in the world. It is also the only financial market that operates round the clock every day. It is estimated that the global Forex market is 2.5X larger than the global GDP. These facts make the Forex market an incredible investment opportunity.
Making your first trade in Forex successfully requires in-depth knowledge about trading basics and Forex trading strategies. The learning curve to trading currencies can seem overwhelming and complex, but when you have the right information by your side, it can make the entire process all the more easier.
Forex trading usually provides much higher leverage compared to other financial instruments like stocks. This is one of the primary reasons why so many people are attracted to Forex, and more and more people have started to enter the Forex trading market.
There are several Forex brokers in the Forex market, and amidst those thousands of Forex brokers, it can become nothing less than challenging for traders to find the best brokers.
When you hold a currency spot position overnight, the interest you either earn or pay is the rollover amount. Each currency has a different overnight interbank interest rate, and because you trade Forex in pairs, you also deal with two different interest rates.
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