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Trading Always Happens In Pairs - Key Components Of A Forex Deal

When trading in the Forex markets, you will always trade in pairs. Each day, online Forex trades are conducted between currencies. While almost all countries have a trading system, there are only a few major currencies that are actively traded. These currencies are also known as the majors. These eight currencies include:

1. USD: United States Currency

2. GBP: British Pound

3. JPY: Japanese Yen

4. AUD: Australian Dollar

5. CHF: Swiss Franc

6. NZD: New Zealand Dollar

7. EUR: Euro

8. CAD: Canadian Dollar

These are the currencies you will be working with most of the time. It is recommended that new traders only focus on the most well known currencies. As we have stated, currency trading always happens in pairs. Each pair will have a Bid/Ask rate.

Let's say you were trading USD/CAD. You have a quotation that reads USD/CAD 2.4323. This means that for $1 USD, you can buy 2.43 Canadian dollars. If the quote changes to USD/CAD 2.4432, then that means that either the US Dollar has increased in value, or the Canadian dollar has dropped in value, or they have both changed in value. If the quote drops to USD/CAD 2.423, then that means the US Dollar has decreased in value, or the Canadian dollar has increased in value, or both currencies have fluctuated in values.

You could make a profit by buying this pair, and selling it at the higher rate. You could also sell this pair, and then turn around and buy it at the lower rate. With leverage, you can borrow money to buy many pairs. You would then turn around and try to sell it at the higher ask price. The spread is the number of pips between the selling price and the asking price. The larger the spread, the more money you can make (or lose) within each pair.

These are some of the key components of a Forex pair. Every trader trades on a base currency. The base currency is the country where you reside. Suppose you want to trade two currencies not involving the US Dollar. When this occurs, you are engaging in cross-currency pairs. Euro crosses occur when trading in Euros.

Understanding how Forex pairs occur in a Forex deal is one of the fundamental steps in learning Forex trading. You will want to spend some time on this topic to make sure you completely understand how this entire process works.