Make money on the exchange of money really
The reason they are quoted in pairs is that, in every foreign exchange transaction, you are simultaneously buying one currency and selling another.
How do you know which currency you are buying and which you are selling? Excellent question! This is where the concepts of base and quote currencies come in… Base and Quote Currency Whenever you have an open position in forex trading, you are exchanging one currency for another.
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Currencies are quoted in relation to other currencies. Here is an example of a foreign exchange rate for the British pound versus the U.
Updated May 29, Julie Bang The Balance Many people like trading foreign currencies on the foreign exchange forex market because it requires the least amount of capital to start day trading. Forex trades 24 hours a day during the week and offers a lot of profit potential due to the leverage provided by forex brokers. Forex Day Trading Risk Management Every successful forex day trader manages their risk; it is one of, if not the most, crucial elements of ongoing profitability. That may seem small, but losses do add up, and even a good day-trading strategy will see strings of losses.
The base currency is the reference element for the exchange rate of the currency pair. It always has a value of one. The second listed currency on the right is called the counter or quote currency in this example, the U.
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy ONE unit of the base currency. In the example above, you have to pay 1.
When selling, the exchange rate tells you how many units of the quote currency you get for selling ONE unit of the base currency.
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In the example above, you will receive 1. You would sell the pair if you think the base currency will depreciate lose value relative to the quote currency.
With so many currency pairs to trade, how do forex brokers know which currency to list as the base currency and the quote currency? Fortunately, the way that currency pairs are quoted in the forex market is standardized. Just know that this is a matter of preference and the slash may be omitted or replaced by a period, a dash, or nothing at all.
They all mean the same thang. If you want to buy which actually means buy the base currency and sell the quote currencyyou want the base currency to rise in value and then you would sell it back at make money on the exchange of money really higher price.
If you want to sell which actually means sell the base currency and buy the quote currencyyou want the base currency to fall in value and then you would buy it back at a lower price.