The Forex market deals in currency exchange on a global level, although there are seven major currencies dominating the market (USD, GBP, EUR, CAD, JPY, CHF and AUD), all the currencies of the world are traded utilizing a Forex strategy. There are recognized foreign currency symbols and acronyms or three letter codes to identify the different currencies. For example the acronyms listed above translate as United States Dollar, Great Britain Pound, EURo, JaPanese Yen, Swiss Confederation Franc (CH is a translation from Latin Confederatio Helvetica ) and AuStralian Dollar. Foreign currency symbols themselves can be confusing, especially when various countries use different symbols for the same currencies.
Forex currency exchange programs are listed in pairs in terms of the value of one currency against the value of another, a currency pair includes the "name" for both currencies (i.e. the acronym), separated by a "/". In currency exchange the first two letters are in most cases reserved for identification of the country. The last letter is the first letter of the unit of currency for that country. As in Great Britain, currency Pound. Since the new European Euro has no specific country attached to it, it goes simply by the acronym EUR. By combining one currency, EUR, with another USD, you create a currency pair EUR/USD. Becoming familiar with foreign currency symbols and acronyms are a must for all Forex strategy employed. Traders need to confident and sure of universal currency conversion and the market before commencing with transactions.
Currency Exchange – Base against Counter
Now that foreign currency symbols have been clarified, it is important to read currency exchange programs and pairs correctly. One currency in a currency pair is always dominant; this is called the Base Currency. The base currency is identified as the first currency in a currency pair. It also is the currency that remains constant when determining a currency pair's price. The other currency exchange in the pair is referred to as the counter currency. The base in the currency exchange is always equal to one of the currency's monetary unit of exchange, for example 1 Dollar or 1 Pound. If an investor buys 10,000 GBP/USD, the British pound as the base currency is being bought or received, and the US Dollar as the counter currency is being sold. The amount of the Base Currency being bought is equal to 10,000 GBP. This always applies regardless of the universal currency conversion. The base currency amount remains constant; it determines the values of currencies exchanged with Forex strategy on the market.
Although the pairs may appear complex, once investors have become familiar with reading quotes and formulated a suitable Forex strategy , it becomes comprehensible, reading foreign currency symbols becomes a second nature. The counter currency amount that the investor is selling will fluctuate with the exchange rate for the currency pair. Since it is this part of the currency exchange pair that fluctuates higher or lower, it determines the strength or weakness of both currencies in the pair. As with everything, when one currency goes up, the other must go down. When a currency exchange pair goes from a low price to a higher price, the base currency is said to have strengthened. The converse is true of the counter currency; it has been weakened as the base currency has strengthened.