All transactions made on the forex market involve the simultaneous purchasing and selling of two currencies.
These are called ‘currency pairs’, and include a base currency and a quote currency. The display below shows the forex pair EUR/USD (Euro/US Dollar), one of the most common currency pairs used on the forex market.

Note: Forex prices are often quoted to four decimal places because their spread differences are typically very small. However, there is no definitive rule when it comes to the number of decimal places used for forex quotes.

On the forex market, trades in currencies are often worth millions, so small bid-ask price differences (i.e. several pips) can soon add up to a significant profit. Of course, such large trading volumes mean a small spread can also equate to significant losses.
Always trade carefully and consider the risks involved.

Trades & Key Terminology

A ‘position’ is the term used to describe a trade in progress. A long position means a trader has bought currency expecting the value to increase. Once the trader sells that currency back to the market (ideally for a higher price than he paid), his long position is said to be ‘closed’ and the trade is complete.
A short position refers to a trader who sells a currency expecting it to decrease, and plans to buy it back at a lower value. A short position is ‘closed’ once the trader buys back the asset (ideally for less than he sold it for).

For example, if the currency pair EUR/USD was trading at 1.0916/1.0918, then an investor looking to open a long position on the euro would purchase 1 EUR for 1.0918 USD. The trader will then hold the euro in the hopes that it will appreciate, selling it back to the market at a profit once the price has increased.

An investor going short on EUR would sell 1 EUR for 1.0916 USD. This trader expects the euro to depreciate, and plans to buy it back at a lower rate if it does.

What are the most traded currency pairs on the forex market?

There are seven Major currency pairs on the forex market. Other brackets include Crosses and Exotic currency pairs, which are less commonly traded and all relatively illiquid (i.e., not easily exchanged for cash).

MAJOR PAIRS

Major pairs are the most commonly traded, and account for nearly 80% of trade volume on the forex market.
These currency pairs could typically have low volatility and high liquidity.

They are associated with stable, well managed economies, are less susceptible to manipulation and have smaller spreads than other pairs.

CROSSES

Cross currency pairs – Crosses – are pairs that do not include the USD.
Historically, Crosses were converted first into USD and then into the desired currency, but are now offered for direct exchange.

The most commonly traded are derived from Minor currency pairs (eg. EUR/GBP, EUR/JPY, GBP/JPY); they are typically less liquid and more volatile than Major currency pairs.

EXOTIC PAIRS

Exotics are currencies from emerging or smaller economies, paired with a Major.

Compared to Crosses and Majors, Exotics are much riskier to trade because they are less liquid, more volatile, and more susceptible to manipulation.

They also contain wider spreads, and are more sensitive to sudden shifts in political and financial developments.

 

CANDLESTICK CHART

A candlestick is a chart, also known as a Japanese Candlestick Chart, and is favoured by traders due to the wide range of information they portray. The chart displays the high, low, opening and closing prices.

A candlestick has three points; open close and the wicks.
The wicks show the high to low range and the 'real body' (wide section) shows investors if the closing price was higher or lower than the opening price.

If the candlestick is filled then the currency pair closed lower than it opened. If the candlestick is hollow, then the closing price is higher than the opening price.

BAR CHART

 

A bar chart shows the opening, close, high and low of the currency prices.

The top of the bar represents the highest paid price and the bottom indicates the lowest traded price for that specific time period.

The actual bar represents the currency pair's overall trading range and the horizontal lines on the sides represent the opening (left) and the closing prices (right).

A bar chart is most commonly used to identify the contraction and expansion of price ranges.

LINE CHART

 

NEED TO KNOW MORE?

In this guide, we’ve briefly covered some of the most important aspects of forex trading, including key terminology, what currency pairs are, how currency pair transactions work, and how investors can profit from positions taken on the forex market.

Take your trading to the next level with our instructional videos, articles, webinars and glossary, all available free on the Forex Course section of our website.

How forex trading works?

It is essentially the process of buying and selling currencies in order to make a profit. The price of one currency is linked to the price of another currency in a trade, so you will always work with two currencies at a time.
The base currency is the first currency appearing in a currency pair quotation, followed the quote currency.
The difference in price between the currencies is where your profit, or loss sits.

How to start Forex trading?
Look for a regulated broker that has at least a 5 year track record. If your broker abides by regulatory rules, then you can be sure that they are legitimate. Once you have an active account you can trade but you will be required to make a deposit to cover the costs of your trades. This is called a margin account.

Fortunately there is an enormous amount of training material available to both new and established traders. The training comes in many formats designed to suit your style of learning. You can attend workshops and seminars, download certified robots to make more money.

Learn forex trading
Learning about forex trading is the first step any successful trader takes. There are many different types of learning materials available to traders-from beginners to advanced.

There are many forex tools available to traders such as margin calculators, pip calculators, profit calculators, economic trading calendars, trading signals and foreign exchange currency converters.

Our Trading courses can help you to enhance your trading experience. Some of the more popular widgets include, Live rates feed, Live Commodities Quotes, Live Indices Quotes, and market update widgets.