Major Forex Currencies & Currency Pairs

As you familiarize yourself with Forex trading and the trading platform, there are some basic Forex principles that you will need to understand as well as some common Forex terminology. In fact, even before you make your first trade, you will need to understand what base currencies and counter currencies are. Your first trade and every other trade you ever make will involve these two variables.

Main Forex Currencies

Although Forex trading involves every currency imaginable, there are certain currencies that tend to be the bedrock of the trading that happens in Forex. These in many ways can be considered the major (or the main) Forex currencies. I will begin by saying that the US Dollar is generally involved in most of the Forex trade that takes place. While this is generally true there are other currencies that at times are used in the same way. The most commonly used currencies used in Forex trade are the Japanese Yen (JPN), the Great British Pound (GBP), the Swiss Franc (CHF) and the Euro (EUR).

Whenever an investor buys or sells currency on the Foreign Exchange, they must first choose the currency that they are making the purchase in. It does not have to be bought in the currency of their particular home country. This means that someone living in the United Kingdom can choose to buy Euros using US Dollars rather than their native Great British Pound (GBP). The currency that is used to make the purchase is known as the Base Currency or the Primary Currency, while the currency that is purchased is called the Counter Currency. The Counter Currency together with the Base Currency is considered a currency pair.

What is a Currency Pair?

Currency pairs describe the combination of the purchased currency paired with the base currency. A currency pair usually looks something like the following: EUR/USD. The three lettered symbols in a typical currency pair represent a particular currency. EUR/USD stands in place of the words Euro / US Dollar. The top symbol in the fraction is what is known as the Numerator while the lower number is called the Denominator. Therefore in the example above, EUR would be the Numerator. If you placed a “BUY” in the instance of the example above, you would be selling the US dollar and buying the Euro. In the world of Forex, going “LONG” describes the act of buying currency.

Forex trades non-stop, 24 hours a day. Currencies are in a constant state of fluctuation and paired currencies potentially shuffle up and down against one another constantly, 24 hours a day. Throughout any given 24 hour period both the base and the counter currency can be expected to fluctuate; going up and down against one another non-stop. This movement is how the Forex investor makes money. The goal is to make money by selling currency that they have bought at a much higher rate than they bought it. Investors watch the market and strategically aim to sell currency for profit.