What is a Pair?

Forex trading involves buying one type of currency and selling another.  Apart from physically buying the currency in cash, keeping it and then reselling it (which is unrealistic) you need to perform these transactions through a forex broker and buy or sell in currency pairs.

There are numerous currency pairs but we will just concentrate on the majors.  These are currencies traded against each other of the major developed countries of the world and make up the bulk of volume traded on the forex markets.

Pair Countries Abbreviation
EUR/USD Euro / United States “euro dollar”
USD/JPY United States / Japan “dollar yen”
GBP/USD United Kingdom / United States “pound dollar”
USD/CHF United States/ Switzerland “dollar swissy”
USD/CAD United States / Canada “dollar loonie”
AUD/USD Australia / United States “aussie dollar”
NZD/USD New Zealand / United States “kiwi dollar”

 

The reason currencies are traded in pairs is because at the same time you buy one and sell the other.   In the table above the first currency listed is the base currency and the second is the counter currency.  For example if you buy the AUD/USD, you are essentially buying the base currency and selling the counter currency.  ie. buy AUD, sell USD.  If you therefore believed that the Aussie dollar was going to appreciate against the greenback due to some good employment numbers due in an economic report then you would buy the pair.  However if you believed that unemployment was due for a sharp fall in the US and the USD was going to strengthen against the Aussie dollar then you would sell the AUD/USD pair on expected weakness.

The position you take when buying or selling a pair is to be wither SHORT or LONG.  This terminology is used extensively in investing circles whereby if you buy a pair and want the base to appreciate over the counter currency then you are going LONG.  Alternatively if you sell the currency pair and want the counter currency to appreciate against the base currency then you are going SHORT