Currency Pair
It is customary to record all transactions on the Forex market using currency pairs; this approach can significantly simplify external perception and at the same time shorten the recording itself.
Currency Pair is an abbreviated record of the relationship between the exchange rates of two currencies; the record uses a special ISO alphabetic code consisting of three letters.
Typically this entry is made in the following form: AUDCAD or AUD/CAD, both options are correct.
This approach shortens the recording of quotes and is easier for a trader or bank employee to quickly understand.
A pair consists of two currencies, one of which is the base currency, and the second plays the role of the quoted one, for example, in the USD/JPY pair the American dollar/Japanese yen, the US dollar is the base currency and the Yen is the quoted currency.
Typically, stock trading uses a lot of different indicators that characterize a given entry.
Indicators characterizing a currency pair
• Quotation rate – can be determined by one or two indicators; if we are talking about the rate set by the central bank, then this is one value.
In the same case, if a commercial rate is given for a certain currency pair, purchase and sale indicators are already used. For example, the Central Bank today has set the dollar to ruble exchange rate USD/RUB at 30.00 rubles per dollar, in the same case, if we are talking about the Forex exchange, you will already see a message - USD/RUB Bid 29.00 Ask 31.00 from this entry we can judge that the US dollar is bought at 29.00 rubles and sold at 31.00 rubles, the difference between these two indicators is called the spread.
• Spread - the difference between buying and selling the base currency in a currency pair, usually this is the commission of the intermediary in the foreign exchange transaction (bank or broker).
Broker spread size for different assets - http://time-forex.com/vsebrokery/spred-broker
• Swap - the fee that you will need to pay if you transfer the transaction to the next day, is calculated as the difference between the discount rates of currencies, the most interesting thing is that the swap can be positive, in this case the trader receives a reward.
• Direct or inverse – if the USD/RUB currency pair is a direct quote that shows how many rubles are given per dollar, then everything is clear, but sometimes you need to express the inverse relationship, how many dollars you can get for one ruble, in this case the inverse is used RUB/USD quote (in practice, this entry is usually not used).
The underlying asset in a currency pair can also be an instrument such as precious metals, in which case you will come across the entry XAU/USD, XAG/USD, where in the first case the ratio of gold to the US dollar is shown, and in the second of silver.
Currency pairs are a universal tool that is used not only when trading on the Forex market, but also on other currency markets.
Read also on the topic:
All about currency pairs that are traded on Forex - http://time-forex.com/pary
Liquidity of currency pairs - http://time-forex.com/terminy/likvidnost-valuty