Lesson 2. Financial market Forex. Main currency pairs. QuotationForex Geek
Almost all known, freely convertible currencies of the world are traded on the forex market, however, the main volume of trade is accounted for by 5 major currencies, which have the highest liquidity, and accordingly there are no problems with their purchase or sale.
All currencies are usually designated by the standard:
USD is the US dollar,
EUR is a single international European currency
GBP is the British pound sterling.
CHF - Swiss franc
JPY - Japanese Yen
The currencies listed above form the most liquid currency pairs: EUR / USD, GBP / USD, USD / CHF, USD / JPY. But this does not mean that all other currency pairs are not suitable for trading. A sufficient amount of currency transactions also falls on the Canadian (CAD), Australian (AUD) and New Zealand dollars (NZD) and, accordingly, the USD / CAD, AUD / USD and NZD / USD currency pairs.
Pairs of cross-rates: EUR / JPY, EUR / GBP, EUR / CHF, GBP / JPY, GBP / CHF.
As you already understood, the object of trading on the Forex market is a currency pair. The currency pair includes two currencies: the base currency and the quoted currency.
The base currency is the first currency in the pair.
Quoted currency is the second currency in a pair.
The value of the base currency is taken as one. Looking at the quotation, you can say "you can buy so many units of currency quotes for one unit of the base currency."
Like any commodity, currencies have a price, it is called a quotation (exchange rate) - this is the price of a monetary unit of one country, expressed in monetary units of another country.
Historically, on the international currency market, any currency is quoted against the US dollar. For example, one euro is worth, for example, 1.22 dollars, but the question arises - is it possible to reverse the dollar in euro and make an operation at this price? No, you can not. Since there are certain rigid standardization of contracts on the market, they are called currency pairs, which we mentioned earlier. As you can see, a part of the currency pairs is supposed to be expressed in dollars, and some is vice versa, and in some quotations the dollar does not participate at all. Depending on how much the dollar is in the currency pair, the quotes are divided into direct quotes, reverse and "crosses".
Direct quote - shows how much of the national currency is contained in one US dollar.
Examples of direct quotation are pairs whose base currency is the US dollar (USD):
USD / JPY and USD / CHF
Reverse quotation - shows how many US dollars are held in a unit of the national currency.
Examples of the reverse quotation are pairs whose quoted currency is the US dollar (USD):
EUR / USD and GBP / USD
The national currency is the one whose price (quotation) we consider in relation to the dollar. On the examples considered - EUR, GBP, JPY and CHF
Cross-rate ("crosses") - a pair in which the US dollar does not participate. For example, EUR / CHF (euro to Swiss franc).
Quotation is not synonymous with the term "currency pair". The currency pair indicates the names of the financial instruments between which the quotation is conducted, and the quote reflects the price at which one currency can be purchased for another. We can say this: the quotation of the EUR / USD currency pair is 1.14150.