orex Currency pairs in in the early 1970s, some of its
Forex trading have been effects are still evident in the
standardized by the IMF. market.
The pairs most commonly traded
The first currency in the pair
are: is known as the base currency,
• EUR/USD, the Euro and the U.S. and it’s the important one. Its
dollar value is always one in the
• USD/CHF, the U.S. dollar and exchange rate, and it controls
the Swiss franc (sometimes called the direction of the trade and
“the Swissie”) the chart. The second currency is
• GBP/USD, the pound sterling of called the cross.
Great Britain and the U.S. dollar
For example, in the GBP/USD,
(sometimes called “the cable”) the British pound is the base
• USD/JPY, the U.S. dollar and currency and the U.S. dollar is
the Japanese yen the cross. If the price on this
• USD/CAD, the U.S. dollar and pair is 1.7609, that means that
the Canadian dollar one pound is worth 1.7609 U.S.
• AUD/USD, the Australian dollar dollars. If the chart goes up,
and the U.S. dollar
that means the pound is
These pairs account for 80% of strengthening against the dollar;
all trades in the Forex market. if it goes down, the dollar is
They all involve the U.S. dollar, strengthening against the
because it’s still the biggest pound.
economy in the world and one of
Because a purchase
the most inviting to trade. But automatically includes two
this is also a holdover from the currencies, one being traded
Bretton Woods Accord of 1944, against the other, it’s just as
which pegged all currencies to possible to make a profit in a
the U.S. dollar as a benchmark. bear market as a bull market. For
Although the Accord was abandoned the same reason, there’s no
prohibition against selling short when you take profits in these
in Forex trading as there is in currencies, you’re taking them in
the stock market; it’s built into the base currency, which then
the system. must be exchanged into the U.S.
Prices are measured in pips, dollar at the current exchange
which is an acronym for Price rate.
Interest Point, and it’s the
If the exchange rate is one or
smallest digit in the price. This more, then this works in favor of
is an important point, because U.S. traders; but if the value is
not all pips are created equally; below one, it’s not such a good
they reflect the base currency of thing. For example, a gain of
the pair. If the U.S. dollar is fifty pips in the GBP/USD equals
the base currency, then one pip not U.S. $50, but £50. If the
equals one dollar in a mini exchange rate was still 1.7609,
account or ten dollars in a then the profit after conversion
standard account. If you place a would be around U.S. $88.
trade with one of these
But a gain of fifty pips in
currencies and earn fifty pips, the AUD/USD equals AU $50, and
that would be a profit of $50 in the exchange rate is more likely
a mini account or $500 in a to be around 0.7467. So the
standard one.
profit would be closer to U.S.
But if the base currency is $37.
not the U.S. dollar, then the
value of one pip is equal to one
unit of the base currency. In the
GBP/USD, because the pound type="text/javascript">
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