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