In order to trade in the Forex markets we need something that increases or decreases in value. Pairing 2 currencies together gives us this market value fluctuation we are looking for.
Each currency can be exchanged for another currency, and this rate of exchange changes on a per second basis. The changes are very small, only 100ths of a cent, but that is all we need to make money trading the Forex markets.
When two currencies are paired together, we are looking for the rate of exchange to change in comparison with one another. As one gets stronger, the other one weakens in comparison. As they say, it’s all relative. It’s a kind of tug of war between the currencies that are paired together.
Let’s use the US dollar against the Canadian Dollar as an example. The US dollar is denoted as USD and the Canadian Dollar is denoted CAD. Paired together it looks like this: USD/CAD.
The first currency is called the Base Currency.
The second currency is called the Quote Currency