oussama94
05-27-2017, 23:51
In a pair, the first currency is called the ‘base’ currency and the second is called the
‘counter’ currency. When you buy a currency pair you are always buying the base
currency and selling the counter currency. Conversely, when you sell the pair, you
always sell the base and buy the counter. For example if the exchange rate of the
euro/dollar currency pair is 1.4100 this means that you need 1.41 US dollars to buy 1
euro. This also means that if you sell 1 euro you will get 1.4100 US dollars. Let us say
you bought 10,000 euros against
the US dollar. At an exchange rate
of 1.4100 this means you would
pay €14,100 (1 euro = $1.41, therefore
€10,000 = $14,100). The next
day the euro rises against the dollar
and the exchange rate goes to
1.4200. This means that for every
euro that you bought, you have
earned 1 cent, which in this case
means you would have profited by
$100 ($14,200 minus $14,100). If you had decided to trade in the opposite direction by
selling the currency pair, this means you would have sold the euro to buy the dollar
and in our example the dollar then decreased in value against the euro. You sold
10,000 euros at 1.41, which means that for every euro that you sold you would have
lost 1 cent. For a trade valued at 10,000 euros that would have been a loss of $100
($14,200 minus $14,100).
‘counter’ currency. When you buy a currency pair you are always buying the base
currency and selling the counter currency. Conversely, when you sell the pair, you
always sell the base and buy the counter. For example if the exchange rate of the
euro/dollar currency pair is 1.4100 this means that you need 1.41 US dollars to buy 1
euro. This also means that if you sell 1 euro you will get 1.4100 US dollars. Let us say
you bought 10,000 euros against
the US dollar. At an exchange rate
of 1.4100 this means you would
pay €14,100 (1 euro = $1.41, therefore
€10,000 = $14,100). The next
day the euro rises against the dollar
and the exchange rate goes to
1.4200. This means that for every
euro that you bought, you have
earned 1 cent, which in this case
means you would have profited by
$100 ($14,200 minus $14,100). If you had decided to trade in the opposite direction by
selling the currency pair, this means you would have sold the euro to buy the dollar
and in our example the dollar then decreased in value against the euro. You sold
10,000 euros at 1.41, which means that for every euro that you sold you would have
lost 1 cent. For a trade valued at 10,000 euros that would have been a loss of $100
($14,200 minus $14,100).