Foreign Currency Trading Quotes
If you are going to trade in foreign currencies it is important to understand the pricing mechanism of the system. The relative rates of the currency or the rates between a pair of two currencies change not only on a day to day basis but on an hourly basis if not less. This is because the price of any currency is dependant on a host of economic and political conditions. Some of the important ones are interest rates, international trade, inflation and political stability. Foreign currency management specialists analyze these statistics in two ways i.e. technical analysis and fundamental analysis. Based on this system the price for each currency is determined and quotes are put up in terms of a pair of currency as well as a buying and selling price so that each quote has four components. Foreign currency trading quotes always show up in pairs of two currencies. This means a currency quote is made of two pairs of currencies. An example of this is the quote EUR/USD. The first currency is called the Base Currency, and the second currency is called the Pricing Currency.
When trading foreign currencies, you are always buying and selling the base currency. Let's say you buy one unit of USD/EUR. This means you are buying 100 dollar and selling at the same time 70.58 EURO at the current value.
The US dollar is usually the base currency, meaning the standard currency which is used when evaluating other currencies. For most major currency the first to appear, the base currency, is the USD. Examples of the currency trading quotes of the "major" currencies will then be USD/CAD (Canadian Dollar), USD/JPY (Japanese Yen) or USD/CHF (Swiss Francs).