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How Forex pairs work?




A currency pair is a price quote of the exchange rate for two different currencies traded in FX markets. When an order is placed for a currency pair, the first listed currency or base currency is bought while the second listed currency in a currency pair or quote currency is sold.

In the forex market currencies are often displayed in pairs, one currency value versus another. An example is USD/EUR (US Dollars/EUROs).

You buy one currency and sell another when trading; that is why it is called foreign exchange. You can hold a trading account in any currency of your choosing and depending on the currency valuations and market fluctuations, you can sell or buy to make profits.

For example, when you buy USD/EUR pair, you spend EUR to buy USD. If the valuation of USD increases versus the EUR, then you sell EUR to buy USD and make a profit in the process. In any currency pair, the first currency is called the "base currency," while the second currency is the "quote currency." In a USD/EUR pair, the USD is the base currency while the EUR is the quote currency.

The US dollar is the principal currency at the center of all trades in the forex market. Every other currency pair is directly or indirectly dependent on it. It is fair to say that the world's economy is directly affected by the health of the US economy.

Only three classifications of the currency pair exists today viz: Majors, Minors and exotic.


How Forex pairs work