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Discover The Importance Of Currency Pairs In Forex Exchange Marketplace.
Every transaction in the foreign exchange market involves a currency pair, base and counter currency.
Since every transaction in the foreign exchange market involves a currency pair, in other words, since it involves two currencies, it can get confusing to remember which is the base currency and which is the counter currency. As we had mentioned earlier, every currency pair being traded on the foreign exchange market is denoted by AAA/BBB where AAA and BBB are internationally recognized three-letter codes for the individual currency.
Then, BBB or the currency in the denominator is the base currency and AAA or the currency in the numerator is the counter currency. As you can now understand, when the counter currency increases, it leads to the strengthening of the base currency and it is now more expensive to buy that particular currency. Conversely, when the counter currency decreases, it leads to the weakening of the base currency and it is a lot cheaper to buy that particular currency.
However, in trading lingo, the base currency is always mentioned first and the currency pair is typically represented as BBBAAA. So a quotation for EURUSD indicates that the Euro is the base currency and the US Dollar is the counter currency.
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