When it comes to Currency in trading for example EUR/USD does it mean that you are trading the USD against the EUR. Is the left side eg: EUR the side being traded against. also if someone could point me out where this information might be on babypips education. Thanks
EUR/USD represents the price of the euro in terms of the U.S. dollar. How “expensive” is the euro in terms of dollars? Right now it’s about $1.20. That’s written this way in forex terminology: EUR/USD = 1.2000
In any currency pair, the first currency listed is called the base currency, and the second currency is called the quote currency (or, sometimes, the cross-currency). The base currency is “quoted” in units of quote currency. So if XXX/YYY = 1.2345, that means that one unit of XXX currently has the same value as 1.2345 units of YYY.
If you’re familiar with algebra, you know that an expression like a/b = x can be written as a = b(x). It’s the same with currency pairs. EUR/USD = 1.2000 can be written as EUR = 1.2000 USD. And, as noted above, 1.2000 USD means $1.20.
When you trade the EUR/USD, you are speculating on the value of the EUR as priced in USD. In other words, will the EUR get more expensive, or less expensive, in terms of the dollar? If the EUR/USD price changes to 1.1900, then the price of one euro has declined from $1.20 to $1.19.
If you take a LONG position in EUR/USD (what we carelessly refer to as “buying” EUR/USD), then you are speculating that the price of the EUR will rise in terms of USD. And if you take a SHORT position (which we carelessly call “selling” the pair), then you are speculating that the price of the EUR will decline vs. the USD.
Regarding the Babypips School lessons, you will find their description of these relationships in the very first lesson in the School of Pipsology. However, with all due respect to this fine website, I caution you regarding that lesson. The Babypips authors talk repeatedly about buying and selling currencies and currency pairs. They even go so far as to compare a LONG position to “buying the base currency and selling the quote currency” — which is total b.s.
In the retail forex market (that’s our market), there is no buying or selling of currencies or currency pairs, even though we all use those terms. Why do we use them? Because it’s easier to say “buy the EUR/USD” than it is to say “take a LONG position in the EUR/USD”. And we’re lazy, so we do what’s easy. Also, in traditional markets, like stocks and commodities, buying and selling actually takes place, and the terminology from those markets has carried over into the retail forex market.
But, the buying/selling terminology is misleading for newbies. It causes all sorts of confusion, and leads to questions like, “If my account is in USD, and I buy the GBP/JPY, do my dollars get exchanged for yen so that I can buy pounds sterling?” The answer to this is that there is no buying or selling of currencies or currency pairs in our market. Your broker does not buy your dollars, or sell you yen, or any other currency. Your broker does not perform currency exchanges.
Your speculation in this market is nothing more, or less, than a bet on the direction of a price (in the discussion above, the price of EUR/USD). Your broker takes your bet, at a price which he has set (his ASK price if you are going LONG, or his BID price if you are going SHORT), and all the bookkeeping is done in your account currency. So, in the case of the USD account with the LONG position in GBP/JPY above, if the GBP/JPY price rises, then the profit in yen is converted mathematically to USD and posted to your account. But, no currency exchange takes place in your account.
Read the Babypips lesson. In fact, read and study the entire Babypips School of Pipsology. But, every time you read about “buying” or “selling” currencies or currency pairs, remember that the correct concept is LONG or SHORT positions in a market in which there is no buying or selling.
Okay, I have to ask: Your profile indicates that you have been a member of this forum for almost a year and a half. How is it that you have no clue what a currency pair is, and don’t know your way around the School of Pipsology? What have you been doing for a year and a half?
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@Blackpenny
It is quite easy.
If you are buying 1 lot EURUSD you are buying 100,000 units.
So you are buying 100,000 EUR for rate*100,000 USD so right now 120,000 USD.
So lets say the rate moves from 1.20 to 1.21. How much profit would you make?
You bought it for 120,000 right and you close (sell) it for $121,000.
So your profit is $1000
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The easiest way for me to understand the pairs is by remembering that the base currency (the one to the left of the slash) is always equal to 1, and the quote currency (to the right, obviously) is how much that 1 unit can buy.
That means that if the EUR/USD is 1.15, the 1 euro = $1.15. If the number goes up, then the euro is getting stronger (because 1 euro can purchase more dollars), and if it goes down, the dollar is getting stronger.
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This is a basic discussion, but that doesn’t mean unimportant.
For several months I have been checking to see which currencies are getting stronger across the whole market, not just which individual chart and this has save me some unwise trades. For example, before going long on a EUR position, I look at what the other EUR pairs are doing. If all the other pairs, especially if that includes EUR/USD, are going down and I want to buy say EUR/NZD, I have to try to find an overwhelming good reason to do so.
I plot the strong and weak currencies against each other at least once a week. EUR has been consistently strong but USD consistently weak so I have been avoiding selling EUR and buying USD.
This is similar to what Dennis does on his Strong Weak Analysis thread though I don’t use the same calculations we generally get similar results.
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The price of the euro in terms of the U.S. dollar are represented the EUR/USD currency pair. Let me clear it. In forex trading first currency is always known as base currency and the second one is quote currency. I try to keep remember in my mind in an easiest way. The left one showing on slash is base currency and the right one is quote. Base currency is always equal to one and how much one unit can buy is the quote currency.
Hi Clint and thank you so much for this information. Was truly more than I expected but so very helpful. I started trading a year ago. Unfortunately my 4 year old grandson is very disabled, blind and quadriplegic. I have had to drop everything to assist my daughter as he has had 7 hospital visits in the last 9 months. Things are settling again… thank goodness and I am recommencing my education. Cheers and thanks again
I should clarify. I have been demo trading but I kept blowing out and started to realize I didn’t quite have it right.
Yeah, that’s the basic knowledge! You have to gather more knowledge on technical and fundamental analysis! Forex is a knowledge based business, so without knowledge success is impossible here!
I seem, you are fresher! If you are, then study on BabyPips School! It will help you to learn Forex with details.
Eur/Usd 1.1 = 1 euro costs 1.1 Usd.
If long, you are converting USD to Euro. As euros become more valuable in USD, you close the trade.
Simple.
I think this explanation will be helpful for you. eurusd = eur/usd, i.e, the quotes featured in the platform is the correlation between the base currency price (the first one in the pair) and the quote currency (the second one). If you want to buy eurusd, it means you bet that euro will grow against dollar, and vice versa.
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