Currencies always trade in pairs, because you're always swapping one for another. Each has a three-letter code: USD, EUR, GBP, JPY, CHF, CAD, AUD, NZD.
Reading a quote
In EUR/USD = 1.0850, the first currency is the base, the second is the quote. The price tells you how many units of the quote buy one unit of the base. So one euro costs 1.0850 dollars.
- Buy EUR/USD = buy euros, sell dollars.
- Sell EUR/USD = sell euros, buy dollars.
Easy trick: the pair goes UP when the first currency gets stronger. EUR/USD up = euro winning. USD/JPY up = dollar winning.
The three families
Majors pair the US dollar with the other big currencies. They have the most traders and the smallest costs. Crosses skip the dollar (EUR/GBP, GBP/JPY). Exotics pair a major with an emerging-market currency: bigger moves, bigger spreads, bigger heartburn.
Trader nicknames
GBP/USD is called "cable" because in the 1800s the exchange rate was sent across the Atlantic by an undersea telegraph cable.
Mixing up direction on USD-first pairs. If USD/JPY falls, the yen got stronger, not the dollar.
- Price = how much quote currency buys one unit of base currency.
- Pair rises when the base currency strengthens.
- Start with majors: cheapest and most liquid.