In the Forex Market, there are six major currency pairs traded the most. These pairs account for 90 percent of the trading activity every day. These six are:
ท EUR/USD = Euro (EUR) vs US Dollar (USD)
ท JPY/USD = Japanese Yen (JPY) vs US Dollar (USD)
ท USD/CHF = US Dollar (USD) vs Swiss Franc (CHF)
ท AUD/USD = Australian Dollar (AUD) vs US Dollar (USD)
ท GBP/USD = British Pound (GBP) vs US Dollar (USD)
ท USD/CAD = US Dollar (USD) vs Canadian Dollar (CAD)
When you are reading the Forex quotes, you have to know the bid price or the highest buying price versus the ask price or the lowest selling price. If you look at a pair (e.g. GBP/USD), you'll notice that it is composed of two currencies. The currency located in the front of the pair (GBP/USD) is called the base currency, which always has a value of 1. The other currency (GBP/USD) is known as the secondary currency. If you see that the bid of the British Pound versus the US Dollar is trading at 1.1416, this simply means that you can buy one Pound for US$ 1.1416.
To understand how the Forex market works better, you need to know what a pip is. A pip (short for price interest point) is the smallest increment in trading value. A move from $1.1234 to $1.1254 is a 20-pip move upwards. So if the bid and ask prices move up, what does it mean? It simply indicates that the base currency (GBP/USD) is getting stronger while the secondary currency (GBP/USD) is getting weaker.
When trading the pairs, bear in mind that what we are "selling" and "buying" is the base currency. Assuming that you are buying the GBP/USD, this means that you are buying the pound, hoping it will rise, and selling the dollar, hoping it will fall. The same way that if you are selling the GBP/USD, you are selling the pound hoping it will fall and buying the dollar in turn, hoping it goes up.
You have to remember that anything that involves money is a risky business. You need to be aware that because you are hoping for great returns, there are also high risks involved. The Forex market is filled with countless opportunities and countless threats. Always weigh both the advantages and disadvantages before engaging in this type of trade. You need to be familiar with all the ins and outs of the Forex market before trading in it.
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