Currency trades

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Last Updated: Sunday, 19 January 2025 16:31

Published: Saturday, 18 January 2025 15:02

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Currency Trades:

You'll hear a lot about Currency trades too, where people bet on a pair of currencies and depending on what direction the currencies move, you make/lose money.

Currency Basics:

Currency Pair: A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency. It indicates how much of the quote currency is needed to purchase one unit of the base currency.

Ex: 80 USD/INR = 80 => This implies that 80 INR (quote currency) is needed to buy 1 USD (base currency).

The US dollar (USD) is often used as the base currency because it is considered the world's primary reserve currency. So, most FX quotes are written as USD/<Quote_currency>. The value quoted is > 1 for most currencies as you need more of the other country's currency to buy 1 USD. That makes it easy to quote, as 0.012 doesn't sound good in quoting (if quoting was done in INR/USD). Notable exceptions are USD/GBP,  USD/EURO which are slightly < 1 as of 2024.

The EUR/USD currency pair is considered the most liquid currency pair in the world. NOTE: it's not in the conventional USD/EUR form, with USD being the base currency. This is how it was done historically. The USD/JPY is the second most popular currency pair in the world.

Forex Market:

Forex market is where these currency pairs are traded.