How Currencies are Named in the Market?

To learn the currency pairs naming formats used in the market we shall first look at how forex trading currencies are named and then look at how forex currency pairs are named. Understanding these currency pairs naming formats is one the basics as currency pairs are the main instruments being traded in the 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= US A Dollar

This currency name is also commonly referred to as a symbol, therefore for US Dollar, the currency name or currency symbol is USD.

Examples of Other Currency Symbols in Forex Trading

Examples of Currency Symbols - Currency Symbols Explained - Currency Pairs Naming Format Explained

How Currencies are Transacted in the Market?

Forex 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 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 EUR USD is Traded:?

To exchange EUR for US Dollar, we use the EUR USD currency pair - currency symbol

EUR USD currency pair symbol 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 market you can buy and sell these currencies online.

In this case The EUR is the base currency and USD is the quote currency.

The base currency is always 1 unit, and the exchange rate quote is in terms of the quote currency.

Therefore, if exchange rate of EUR USD 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 Forex 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 forex trading lot or 1 contract. 1 contract is equal to 100,000 units of currencies. The forex contract can also be divided into smaller contracts called mini forex trading lot = 10,000 units of currency and micro forex trading 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 forex contract as equal to $100, 000. Also because most accounts used by investors and traders are Dollar Accounts ($), 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 contract represents the standard units used in trade transactions. The Quote Price commonly referred to as the exchange rate is the price at which one buys or sells in a particular trade transaction.

Because 1 contract is equal to $100,000 units of currency and most people cannot afford, the Forex 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 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 MetaTrader 4 Software

Examples of Currency Symbols in MT4 Platform

Showing Currency Pairs Symbols on MT4

Once you open the MetaTrader 4 platform you may find that some currency symbols are not listed on the MetaTrader 4 Market Watch Window . So, now you will start saying - oh, my broker only provides 5 currency symbols, I wanted to trade the EUR JPY currency pair which is one of my most popular pairs - but my broker does not provide it on their MetaTrader 4 platform - well before you change your 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 - (MetaTrader 4 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 EUR USD currency as shown below:

EUR USD Currency Pair Symbol - MetaTrader 4 Market Watch Window - Showing Currency Pair Symbols on MT4 Platform

To show a list of all available currency symbols on the MT4 platform follow the steps highlighted below:

How to Display and Show all the Currency Symbols Available on the MT4 Platform

All the symbols available will be shown the same way as the MetaTrader 4 symbols example below:

List of all Available MetaTrader 4 Symbols Shown on the MetaTrader 4 Platform

From the above list of all forex 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 currency symbols that you are not interested with, follow the steps shown below:

How to Hide Forex Symbols in MetaTrader 4 To Save Internet Bandwidth

Hiding of currency pairs is done so as to save internet bandwidth that the MT4 software is using. There is no need of streaming trading price quotes of 50 currency symbols if you are only interested in 1 or 2 currency symbols, you only need streaming prices for the 2 currency symbols only.

For example if you only trade the Forex major currency pairs, you can select the show all the currency symbols, then select all the 4 major currency pairs - EUR USD, GBP USD, USD JPY and USD CHF, 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 trading price quotes for these 4 currency pairs instruments only.

Calculating Forex Profits in the market

1 Forex contract gives a profit of $10 for every 1 pip movement.

1 pip is the smallest movement in trading 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 price quote, but this fifth decimal point is not the pip, the 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 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 pip movement.

If a currency pair moves 20 pips in your favor you will make $200 dollars with 1 standard forex 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 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.