Forex trading is always done in terms of currency pairs, because the very essence of forex is buying one currency with another currency.

The currencies are expressed with a three letter abbreviation; for example, the Euro is EUR, while the Japanese Yen is JPY.

Forex price quotes display the base currency first, then a forward slash followed the quote currency. Here is an example:

CAD / USD 0.82

So in the example above, the Canadian dollar is the base currency, while the US Dollar is the quote currency. It expresses that it will take $0.82 United States dollars (82 cents, in other words), to purchase one Canadian dollar.

This transaction would indicate you are optimistic about the Canadian dollar appreciating in value relative to the US Dollar. Otherwise, you would be looking at the opposite transaction.

The currency pair indicates nothing about the value of either currency relative to other currencies. In fact, the base currency may in fact be declining in value, relative to currencies other than the quote currency. With each currency pair, our only concern is the value of each currency relative to the other.

How many currency pairs should one trade? Many experts maintain that any given individual should be active in only one pair. Otherwise, it may be far too difficult to keep up with all of the background work required to conduct wise trades.

Which currency pairs should you trade? Considering the fact that the USD is the most widely traded currency, beginners often start with the USD as either the base or quote currency in a currency pair. In fact, many traders always stick with the same currency pair.

Once you decide on which currency pair or pairs you will be trading, it will be to your advantage to stay current on financial news and other news that affect currency values. There are of course many news sources available for free online. You can subscribe to RSS feeds for specific sites, and even set up RSS feeds based upon certain keywords. In this way, you can stay current on news that may affect your trading decisions and results.

After all, the value of currencies depends on events that happen in the real world, and in the meaning the market (meaning the collective mind of millions of people) place on them. So its a good plan to keep abreast of what is happening in the world, especially as it relates to your currency pairs.

Other currencies that one may consider trading include:

Euro (EUR)
British pound (GDP)
Swiss Franc (CHF)
Australian dollar (AUD)

The beginning forex trader would be well advised to stick with the currencies mentioned in this article, and refrain from trading other more “exotic” currencies until he or she gets more experience trading forex.