Chapter 1 Currency Pairs, Long & Short
1. Currency Pairs
A Forex quote always consists of two currencies, a currency pair consisting of a base currency and a quote currency (sometimes called the "counter currency"). These pairs represent the currencies you're trading. The first part of the pair is called the Base Currency, and the second is called the Quote Currency.
Popular and often-used base currencies include EUR (Euros), GBP (British pounds) AUD (Australian Dollars) and USD (US Dollars).
The quote currency may be any currency, including another of the common base currencies, as in this example:
EUR/USD = 1.3600
Here, EUR is the base currency and USD is the quote currency. You would translate this pair to mean that one Euro is worth 1.36 US Dollars.
No matter which currency is the base currency—whether USD, EUR or any base currency—the base currency always equals 1. The quoted amount, 1.3600 is the amount of the quote currency USD that takes to equal 1 unit of the base currency, EUR.
2. Long & Short
A long—also known as long position—is the buying of currency with the expectation that it will rise in value. By doing so, you buy a currency pair first with the intention of selling it later at a higher price. Holding a long position is a bullish view.
A short, or a short position, is the selling of currency with the expectation that it will decrease in value. By doing so, you sell a currency pair first with the intention of repurchasing it or covering it later at a lower price. Holding a short position is a bearish view. A short position is the opposite of a long position.
In the Forex markets, long positions and short positions can be created at any time.
