Currency pair
From Wikipedia, the free encyclopedia
A currency pair depicts a quotation of two different currencies. The first currency in the pair is the base currency. The second currency in the pair is labelled quote currency or counter currency. Such a quotation depicts how many units of the counter currency are needed to buy one unit of the base currency.
For example the quotation EUR/USD 1.2500 means that one euro is exchanged for 1.25 US dollar. If the quote moves from EUR/USD 1.2500 to EUR/USD 1.2510, the euro is getting stronger and the dollar weaker. On the other hand if the EUR/USD quote moves from 1.2500 to 1.2490 the euro is getting weaker while the dollar is getting stronger.
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[edit] Majors
Majors are the most liquid and widely traded currency pairs in the world. Trades involving majors make up about 90% of total Forex trading.
The Majors are: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD.
GBP/USD is the only currency pair with its own name. It is known as "Cable", which has its origins from the days when a cable under the Atlantic synchronised the GBP/USD rate between the London and New York markets.
[edit] Cross Rates
Cross rate is a currency pair that does not include USD, such as GBP/JPY. Pairs that involve the EUR are called euro crosses, such as EUR/GBP. All other currency pairs (those that don't involve USD or EUR) are generally referred to as cross rates.
[edit] Pips
A Pip is the smallest number in a quotation of a currency. For example if the quotation of EUR/USD is 1.2025, a pip is represented by EUR 0.0001. EUR/GBP has half pips, in that it is quoted to a fifth decimal place which can only be 0 or 5. This is because one pip in EUR/GBP is equal to four pips in its predecessor, GBP/DEM, and one pip in EUR/GBP would be too large an increment.
[edit] Spread
The quotation of a currency pair usually consists of two prices. The lower price (bid) is the price at which a market maker is willing to buy the first currency of a pair. The higher price (offer) is the price at which a market maker is willing to sell the first currency of a pair. The spread is the difference between the two prices. For example if the quotation of EUR/USD is 1.2025/1.2028, then the spread is EUR 0.0003 (or 3 pips).
