NoaFX Tutorial

2.3 How does buying a currency pair work?

When you buy a currency pair, you are speculating that the base currency will rise in value against the counter currency. Naturally, when this pair gains in value, you will exit the trade and pocket the profits made.

Buying a Currency Pair

For example, if you are to buy EUR/USD, which is buying the EUR against the USD, you are expecting that the Euro will rise in value against the US Dollar.

  • You buy 10,000 contracts of EUR/USD at 1.3500
  • In expectation of this contract value to increase, you went long.
  • The currency pair's value increases from 1.3500 to 1.3550, which is a 50 pips price increase. This change in price could be due to;
    • The relative value of the Euro currency has increased against the US Dollar currency.
    • The relative value of the US Dollar currency has dropped against the value of the Euro currency.
    • The relative value of the Euro currency and the US Dollar are both increasing at the same time, but the rate of change is slightly faster for the Euro than for the US Dollar.
    • The relative value of the Euro currency and the US Dollar are both decreasing at the same time, but the rate of change is slightly faster for the US Dollar than for the Euro.
  • Therefore, having made a 50 pips profit, you close your trades.
    Profit made is 50 pips, which is approximately 50 x $1.00 (price per pip) = $50.00

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