Currency Pairs

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DEFINITION of 'Currency Pairs'

Two currencies with exchange rates that are traded in the retail forex market. The rates of exchange between foreign currency pairs are calculated as the factor by which a base currency is multiplied to yield an equivalent value or purchasing power of foreign currency. The currency exchange rates of foreign currency pairs float, meaning that they change continually based on a multitude of factors.

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BREAKING DOWN 'Currency Pairs'

For example, the currency pair EUR/USD, or "eurodollar," represents the number of U.S. dollars that can be bought with one euro. As the value of the EUR increases, the currency pair exchange rate will also increase.

By going long the EUR/USD foreign currency pair, the currency trader is speculating that the value of the euro will increase in relation to the U.S. dollar. Alternatively, when a forex trader shorts the EUR/USD currency pair, he or she is speculating that the value of the U.S. dollar will increase in relation to the euro.

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RELATED FAQS
  1. How is the value of a pip determined?

    A pip in foreign exchange trading is a measure of a price movement in a currency pair. "Pip" is an acronym for price interest ... Read Full Answer >>
  2. What are the goals of covered interest arbitrage?

    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  3. How do I close a long position in forex?

    Closing a long position in forex trading depends on whether you are using a broker operating under U.S. trading regulations. In ... Read Full Answer >>
  4. Where did the term 'pip' in currency exchange come from?

    The term pip is an acronym for percentage in point or price interest point. It measures a unit of change within a pair of ... Read Full Answer >>
  5. How do changes in national interest rates affect a currency's value and exchange ...

    All other factors being equal, higher interest rates in a country increase the value of that country's currency relative ... Read Full Answer >>
  6. What is the difference between pips, points, and ticks?

    Point, tick and pip are terms used to describe price changes in the stock market and other markets. While traders and analysts ... Read Full Answer >>

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