How Currencies are Named in the Foreign Exchange Market
To learn the forex currency pairs naming formats used in the Forex market we shall first look at how forex currencies are named and then look at how forex currency pairs are named. Understanding these forex currency pairs naming formats is one the forex basics as currency pairs are the main instruments being traded in the foreign exchange market.
Naming Format of Forex Currencies
The naming format of forex currencies has three letters, explanation of each letter is shown below:
First two letters - identify name of country
Last letter - identify the currency
USD= USA Dollar
This currency name is also commonly referred to as a symbol, therefore for US Dollar, the currency name or currency symbol is USD.
Examples of Other Currency Symbols in Forex Trading
Examples of Forex Currency Symbols - Forex Currency Symbols Explained - Forex Currency Pairs Naming Format Explained
How Currencies are Transacted in the Foreign Exchange Market
Forex Trading is the buying of one currency with another currency, exchanging the money for a different currency of the same value, through a bank or a forex broker, who acts as the custodian.
Since one currency is traded for another, each forex trading transaction is exchanged in pairs of two - called a currency pair, For example, EUR/USD. When a forex trade transaction is made it is the simultaneous buying of one currency and automatically selling the other currency. So if you buy EUR you automatically sell USD and vice versa.
Example of How The forex Currency Pair EURUSD is Traded:
To exchange EUR for US Dollar, we use the EURUSD currency pair - currency symbol
EURUSD currency pair symbol is used to facilitate business between the European Union and United States. However, in the Foreign Exchange Market these currency pairs are globally available for anyone to freely trade with and speculate with - because these forex currencies have been floated freely in the interbank exchange market. As long you have the capital to speculate with in the FX market you can buy and sell these forex currencies online.
In this case The EUR is the base currency and USD is the quote currency.
The base currency is always 1 unit, and the exchange rate quote is in terms of the quote currency.
Therefore, if exchange rate of EURUSD currency pair = 1.50000, it means 1 Euro = 1.5 US dollars. So for every 1 Euro you have, you can buy 1.5 dollars.
In Forex trading, you cannot buy 1 or 2 dollars, you can only buy a minimum of 1,000 units of currency, which is a micro forex lot. The standard unit of trading is called 1 standard forex lot or 1 forex contract. 1 forex contract is equal to 100,000 units of currencies. The forex contract can also be divided into smaller contracts called mini forex lot = 10,000 units of currency and micro forex lot = 1,000 units of currency.
Because the USD or $ is the most popular currency in the FX Market, most forex traders will refer to the standard forex contract as equal to $100, 000. Also because most forex trading accounts used by investors and forex traders are Dollar Accounts ($), then 1 standard forex lot of 100,000 units (Dollars) will also be equal to $100,000.
Forex is traded using forex contracts provided by a forex broker. A forex contract represents the standard units used in forex trading transactions. The Quote Price commonly referred to as the exchange rate is the price at which one buys or sells in a particular forex trade transaction.
Because 1 forex contract is equal to $100,000 units of currency and most people cannot afford, the Forex broker gives you forex leverage to trade with. when a forex broker gives you forex trading leverage of 100:1 it means that you can buy or sell 1 forex contract with $1000 of your money. This is because forex leverage 100:1 means the forex broker gives you 100 dollars for every $1 you have in your forex trading account. So if you have $1000 in your forex trading account the forex broker gives you forex leverage 100:1 you get - 1000*100= $100,000 to trade with.
Examples of Forex Currency Symbols on MT4 Forex Trading Software
Examples of Forex Currency Symbols on MetaTrader 4 Forex Trading Platform Software
Showing Forex Currency Pairs Symbols in MT4 Forex Platform
Once you open the MetaTrader 4 forex trading platform you may find that some forex currency symbols are not listed on the MT4 Market Watch Window . So, now you will start saying - oh, my forex broker only provides 5 currency symbols, I wanted to trade the EURJPY currency pair which is one of my most popular Forex pairs - but my forex broker does not provide it on their MT4 forex platform - well before you change your forex trading broker, we will show you where to retrieve that currency pair you want and are looking for, and show you where your forex broker has hidden it.
MetaTrader 4 Market Watch Window - (MT4 Short Cut Key CTRL+M) - to open MT4 market watch window just use the short cut key CTRL+M
For Example you may open the MT4 and only get the EURUSD currency as shown below:
EURUSD Currency Pair Symbol - MetaTrader 4 Market Watch Window - Showing Forex Currency Pair Symbols in MT4 Forex Platform
To show a list of all available forex currency symbols on the MT4 forex platform follow the steps below:
How to Display and Show all the Forex Currency Symbols Available on the MetaTrader 4 Forex Trading Platform
All the forex symbols available will be shown the same way as the MT4 forex symbols example below:
List of all Available MT4 Forex Symbols Shown on the MT4 Forex Trading Platform
From the above list of all forex trading symbols, a forex trader can select the forex currency pair they want to trade, by right clicking on any forex symbol, then selecting "open chart". Once the forex chart is opened a forex trader can then open a forex trade for the newly selected currency symbol using the forex chart that is opened.
Once you have selected all the forex currency pairs that you want, you may want to hide all the other currency symbols that you are now not trading. To hide those forex currency symbols that you are not interested with, follow the steps shown below:
How To Hide Forex Symbols on MetaTrader 4 Forex Platform To Save Internet Bandwidth
Hiding of currency pairs is done so as to save internet bandwidth that the MetaTrader 4 forex trading platform is using. There is no need of streaming forex price quotes of 50 forex currency symbols if you are only interested in 1 or 2 forex currency symbols, you only need streaming prices for the 2 forex currency symbols only.
For example if you only trade the Forex major currency pairs, you can select the show all the forex currency symbols, then select all the 4 major currency pairs - EURUSD, GBPUSD, USDJPY and USDCHF, open their forex charts and then select hide all after opening the forex charts for the currency pairs that you want to trade. That way you will only receive streaming forex price quotes for these 4 currency pairs instruments only.
Calculating Forex Profits in the Foreign Exchange market
1 Forex contract gives a profit of $10 for every 1 forex pip movement.
1 forex pip is the smallest movement in forex price exchange rate, and it is equal to 1 hundredths (1/100) of 1 cents, or the equivalent of 0.01cents.
Note: there is now the fractional pips, the fractional pips is the fifth decimal point in a forex price quote, but this fifth decimal point is not the forex pip, the forex pip is the fourth decimal point.
So if you have opened 1 forex contract and the exchange rate moves by 0.01 cents you make profit of $10.
If the exchange rate moves by 1 cents and you have opened 1 forex contract, your profit will be $1,000, because 1 cents movement is equal to 100 pips and 1 pip profit per lot is $10.
Because most forex currency pairs move less than 1 cents a day, on average 1 forex contract can yield a profit of below or just about $1,000 in a day depending on the amount of forex pip movement.
If a forex currency pair moves 20 pips in your favor you will make $200 dollars with 1 standard forex contract and if the same currency pair moves 50 pips in your favor you will make $500 dollars.
This is how profits are generated in the Foreign exchange market.
Likewise, If a forex currency pair moves 20 pips in the opposite direction of your open forex trade will lose $200 dollars with 1 standard forex lot and if the same currency pair moves 50 pips in the opposite direction of your open forex trade you will lose $500 dollars.