In Forex, cash is traded for cash. Euros are traded for dollars, dollars for yen, yen for euros and so on. There are dozens of trading pairs, just as there are dozens of currencies around the world that participate in the currency exchange markets. Forex trading is always about buying one currency and selling another one simultaneously.
Some currency pairs are more popular than other currencies and you may see those referred to as the 'majors.' This is information that you will need to know when you want to be a part of Forex currency trading.
Concentrate mainly on the ones that trade most often and then, when you're ready to start in Forex currency trading, trade only those currencies you have become knowledgeable enough to trade.
In theory, you could trade any two currencies of the world, but most foreign exchange trading is limited to the currencies of the larger financial powers. The currency listed on the left is called the 'base currency' (GBP in the first pair listed) and the second is the 'quote currency' (USD).
The four most common 'majors' are:
GBP/USD - the British pound and US dollar
EUR/USD - the Euro and US dollar
USD/CHF - the US dollar and Swiss franc
USD/JPY - the US dollar and Japanese yen
Some traders do get involved in other combinations of these major currencies or pairs that include other currencies. There are two other pairs that are also frequently traded:
USD/CAD - the US dollar and Canadian dollar.
AUD/USD - the Australian dollar and US dollar.
When you are starting Forex trading it is best to stick with the major currencies and, of course, the currencies available to you through your broker.
As you can see by the major pairings above, the US dollar is the most significant single currency. The euro is second, followed by the yen, pound, Swiss franc, AUD and CAD in that order.
Most experts advise that beginning forex traders start with the Euro/US dollar pair. These currencies have a high liquidity and smaller spread so that your costs are lower (your broker makes his money on the spread).
Don't start trading a lot of different currencies when you are beginning. Stick with the largest market (EUR/USD) for the first while until you are comfortable with forex trading and have experienced some wins and losses to see how you handle them.
Once you are sure you want to continue trading foreign currencies you can choose another forex pair to work, such as the GBP/USD pairing.
Remember, no matter which currency pair you start with, do paper trading first and then only trade with money you can afford to lose.
