Understanding FOREX

All currencies around the world are assigned a three letter code, such as USD for United States Dollars, EUR for the Euro, or GBP for the British Pound. The four most common currency pairs that dominate the Forex Market are:

Euro vs US Dollar USD vs Swiss Franc USD vs British Pound USD vs Japanese Yen

Trading is done in combinations called a "cross."

A cross is formed by combining the codes for the two currencies you are working with, forming a 6 letter combo such as EURUSD. When doing a combo, the more expensive currency is listed first. The currency that is listed first is called the Base Currency and its value is always 1. The US dollar is the centerpiece of the FOREX market and is normally considered the 'base' currency for quotes except in case of GBP, AUD & EUR.

After the cross, you will see a number. For example, if you saw GBPUSD=1.821 (GBP is the base currency over here), it means that it takes 1.821 US dollars to equal 1 British pound. When a rate changes, it is displayed in bold print, so a change from 1.821 to 1.825 would equal a move of 4 points. Simply stating that now 1GBP can buy you more of US dollars.

Currency pairs that do not involve the U.S. dollar are called cross currencies, but the premise is the same.

The goal is to invest in a currency that appreciates in value in relation to the other currencies, or simpy put it as... buy low - sell high.