This tutorial we will talk about currency pairs and how to read them. So let's have a look at a chart. This is the Eurodollar dai...
This tutorial we will talk about currency pairs and how to read them.
So let's have a look at a chart. This is the Eurodollar daily chart, and you can see that the current price for the euros dollar is 1.2524 so what does that mean how do understand.
Well, let's look at the currency pair at the bottom the currency on the left of the pair is called the base currency in this case it's the euro and the currents in the right is called the quoted currency in this case it's the use dollar you receive this price of 1.2524 for the euros dollar currency pair written the following way.
This is equivalent to writing it out as euro/US dollar equals 1.2524 Nellis quickly simplify this example to understand it a bit better this replace the euro currency with apples and let's say that we are quoting the price of apples in US dollars personnel really like this approach because it takes one of the unknowns out of the equation.
If you think about it euros like any other money is a tangible object, you can hold in your hands.
You can measure it, you can weigh it up you can count it's it's something that actually physically exists so that means we can easily replace it with something else that also physically exists but is better known to us like apples.
For example, you can count apples. You can weigh them up and you can hold them in your hand.
Just like euro so there's no harm in replacing euros with apples just for the sake of this example.
So here you can see that the price of a single Apple in American dollars is 1.2524 and that's exactly what this equation means.
Now if we go back to the euro, we can quickly understand that the chart, in fact, represents the price of one single euro in terms of US dollars.
So this means that at the point in time when the snapshot was taken for one euro you would get €1.2524 dollars and conversely 2 x 1 euro, you would need US$1.2524 and this principle applies to any currency pair.
The chart simply expresses the value of the base currency which is on the left quoted in terms all the quoted currency which is on the right.
So as both candles appear throughout the day and the price changes on your chart.
You always know that this is simply the price of the base currency changing in terms all the quoted currency Nellis look at another example let's take use dollar Canadian dollar.
For instance, this example will be a bit more tricky because the US dollar is on the left. Now as you can see the US dollar is the base currency.
In this example, and the Canadian dollar is the quoted currency. How do we read this chart very similar approach use dollar Canadian equals 1.1287?
It's the same as putting a/in between the currencies.
I know we can replace the US dollar with apples as you can see here we replacing the base currency from Apple and it doesn't matter that it's the US dollar.
There's nothing special about the US dollar in terms of Forex charts use dollar can be on the left is dollar can be on the right.
It doesn't matter what we are looking to do right now is really looking to replace the base currency of something that we know quite well in this case apples.
So in this example, we can see that the price of one Apple is C$1.1287, or approximately C$1.13 so no going back to US dollars.
We can see that the price of one US dollar is approximately C$1.13. This means that for one year's dollar you will get one Canadian dollar and 30 Canadian cents more.
Conversely, to buy when use dollar, you would need one Canadian dollar and 13 Canadian cents and now when we look at the chart.
We know that the price is simply telling us how much an American dollar is worth in Canadian dollars.
And as the price goes up and down throughout the day. That's simply the price of American dollars expressed in Canadian dollars.
Also, changing throughout the day. There are over 180 currencies in the world and you can combine any two of them to give you a currency pair.
Most traders identified two main groups of currency pairs and these are the majors the euro use dollar, the dollar again the British pound dollar.
The straight and dollar American dollar, the dollar-Swiss franc and the dollar Canadian dollar and also the second group is the crosses a simply put, all currency pairs that did not include the American dollar such as the euro, British pound British pounds Yen Australian dollar Canadian dollar and so on.
And of course are also all other currency pairs. One final note before we finish this tutorial is that the order in which to currencies go into their currency pair is fixed.
So, for instance, you will never see a currency pair called you is dollar-euro or a currency pair cold. Use dollar Australian dollar.
That's because it has historically developed in each case, how the currency pair is fixed and people just choose not to change it so in order to avoid confusion.
So a euro use dollar chart will always be your use dollar chart and therefore you will always know that it is quoting the price of one euro in terms of American dollars.
On that note, we will wrap up today's tutorial. I look forward to seeing you next time. And until then, happy trading
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