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Topic: Currency pair

To make it easier to understand which positions are opened, a concept of currency pair at Forex market was introduced. Instead of saying "I have bought euro for dollar" or «I have sold euro for dollar" traders use shorter phrases: "To buy euro-dollar" or "To sell euro-dollar" (respectively). Let us see what currency pair is in details.

The record of currency pair is an abbreviation of names (in compliance with ISO 4217 standard) of relative currencies that stand one after the other (without spaces, but sometimes with right slash "/"). For example, currencies euro (EUR) and dollar (USD) make together a currency pair EURUSD (euro-dollar). Buying this currency pair means buying euros for dollars. Always in any case regardless of currencies in the pair, the first of them is bought with the second one. Thus the AUDCAD buying means the buying of the Australian dollars for the Canadians ones. Likewise the EURUSD selling means the selling of euro for dollars.

Using professional language, the first currency pair is the basic one, and the second is the quoted one. Thus in NZDUSD pair the basic currency is the New Zeeland dollar (NZD) and the quoted one is the American dollar (USD).

When examining the list of currency pairs (for example, in client terminal MetaTrader4 by LiteForex company in the window "Market review"), it should be mentioned that there are financial instruments where basic currency is the American dollar (for example, USDJPY, USDCHF, USDCAD). In this case it is said that direct quoting takes place (it shows the quantity of units of the quoted currency in one American dollar). In the same time, the American dollar is a quoted currency in some other pairs (for example, EURUSD, GBPUSD, AUDUSD, NZDUSD). It is called back quoting. The value of price in this case should be interpreted as quantity of dollars in one unit of basic currency.

Of course by means of simple mathematical transformation it is not difficult to get USDEUR currency pair from EURUSD. Indeed, lets EURUSD price in some time period will be 1.39224. Then

will be the USDEUR price.

Why there are no such financial instruments in quoted lists of the largest broker companies? - It is just a historic tradition.

The currency pairs listed above: USDJPY, USDCHF, USDCAD, EURUSD, GBPUSD, AUDUSD, NZDUSD make the group of so-called "majors" - they are united by the presence of the American dollar in each of them. They are high liquid financial instruments that are characterized by significant volatility and ability to change greatly, and thus have great potential for making profit.

There are other groups of instruments. If, for example, the basic currency is the Australian dollar, and the quoted one is the Canadian dollar, then this cross-rate is AUDCAD. So-called cross-rates are divided into "major crosses" and "minor crosses" according to their liquidity on the financial markets.

Furthermore, there are different groups of financial instruments, it is noted that the separate currencies can play that or this typical role more frequently. In particular the currencies of more stable countries and also contracts on precious metals (USDCHF, USDJPY, XAUUSD, XAGUSD) may be financial instruments and the investments that can permit to wait safely till the crisis on the markets is over. Using trade jargon, these instruments are called "refuge-currency". The currency of countries in export structure of which the raw materials prevail, are usually called raw material currencies (for example, USDCAD, AUDUSD).


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