Forex trading takes place on pairs of currencies. In trading forex, one currency is valued against another; like the U.S. Dollar vs. the Japanese Yen or the Dollar vs the Euro. This establishes a rate of worth; one currency’s value is judged versus another currency’s value.

On the Forex, currency quotes come in pairs. The first currency is known as the base currency, while the second is called the quote currency or counter. In Forex trading, currencies quotes use five numbers or digits, with the last, or least-significant digit called a point or a pip.

The Curriences Most Commonly Traded:
US Dollar (USD)
Japanese Yen (JPY)
Australian Dollar (AUD)
Swiss Franc (CHF)
Euro (EUR)
Canadian Dollar (CAD)
British Pound (GBP)

Commonly Traded Currency Pairs:
Euro and US Dollar (EUR/USD)
US Dollar and the Japanese Yen (USD/JPY)
US Dollar and Swiss franc (USD/CHF)
British Pound and US Dollar (GBP/USD)

A direct-rate is a quote against the US Dollar in trading foreign currency. A currency not quoted against the US Dollar is called a cross-rate.

Like traditional stock markets, forex quotes include a "bid" and "ask" price. For example, USD/JPY may be bidding at 132.01 and asked at 132.07, this quote has a six-pip spread and is part of the trader's cost of doing business.

Forex quotes consist of a certain number of units of the base currency, for example, a quote of USD/CAD at 1.38 means that for every 1 U.S. Dollar, you’ll get 1.38 Canadian Dollars.

Currency pairs are usually traded at 100,000 units of the base currency. For example, if you were to buy EUR/USD at .92 you would be paying $92,000 Dollars for 100,000 Euros.

In the above Forex trade example, you bought Euros with U.S. Dollars, with the hope that the Euro will increase in value relative to the Dollar, not decrease. You sell the position and make a profit as the value of the Euro rises relative to the Dollar the position becomes profitable.