The currencies are traded in pairs and therefore exchanged one for the other this is the reason this is called the exchange rate. The most of the currencies are traded against the US dollar, the euro, the Japanese yen, the British pound or the Swiss franc. These currencies have the greatest importance on the market and this is why are called the major currencies. According to a few other researchers we should include as well the Australian dollar within the group of major currencies.
When we analyze a pair we refer the first currency as the base currency and the second as the counter or quote currency. It is important that the counter or quote currency is the numerator in the ratio, and the so called base currency is the denominator. As a strict rule the value of the base currency always equals 1, which is the reason why the exchange rate tells how much of the quote currency should be paid to obtain 1 unit of the base currency. This same exchange rate as well tells the seller how much quantity is received in the quote currency for one of the base currency.
One of the specifications of forex market is that it is divided into several levels of access. The top is market between the banks, which consists of the largest investment banking companies. Within this market the so called “spreads” or the difference between the “ask” and the “bid” prices, are razor sharp and normally not known to players outside this circle.
