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Common Currency Exchanges and Using a US Currency Converter

Foreign currencies are traditionally exchanged in dollar amounts referred to as "lots". Each lot is the equivalent of $1,000, and each $1,000 lot can control $100,000 in currency due to leverage (margins). This leverage is a large part of what draws investors to the Forex market.

Currency codes on a US currency converter:

Each major currency to be exchanged has a three letter code, such as:

USD - US dollar
EUR - "EURO"
GBP - British pound
JPN - Japanese yen
CHF - Swiss franc
CAD - Canadian dollar
AUD - Australian dollar

Most often, the same country currency codes are used in an online US currency converter.

Buy and sell pairs on a US currency converter

Clearly, you can never exchange a currency for itself. ("Trade you a euro for a euro?") If you enter US dollars in both the buy and sell fields in a US currency converter, the result will always be 1.000 which is meaningless. In FOREX, as in US currency converters, currencies are always exchanged in pairs and expressed as a fraction, for example:

USD/CAD: US dollar / Canadian dollar
EUR/USD: Euro / US dollar
USD/JPN: US dollar / Japanese yen

As you can see, the pairs of currencies being exchanged resemble fractions, and the codes are similar to those on a US currency converter. The top or left currency is called the "base" currency; the bottom or right is called the "counter" currency. Many people find this counter-intuitive, as you’d expect the lower part of a fraction to be called the base. But it doesn’t take long to grasp the concept. It’s as easy as using a US currency converter.

When buying a currency pair, you’re always buying the base currency. When selling a currency pair, you’re always selling the counter currency.

It’s generally easier to simply think of the currency pair as a single item, as if you’re just buying or selling that one item, even though you’re actually exchanging a foreign currency pair. There are times, however, when you need to consider both the base and counter currencies. This is particularly true in fundamental analyses, where you’re considering each country’s political and economic outlook in relative terms. And when using a US currency converter, you must obviously enter two currencies.

US currency converter: useful in rising and falling markets

The base/counter concept is critical to foreign currency exchange, so it’s vital to grasp the concept. In Foreign exchange, whether or not you’re using a US currency converter, you are always buying one currency and selling another. (Base/Counter) When you sell the pair, you’re really switching which currency you’re selling and which currency you’re buying. So unlike the stock market, you can short sell without difficulty.

This is a key advantage of forex: you can short sell without restriction, meaning you can make a profit regardless of whether the market is rising or falling. Naturally, the reverse is also true: you can lose money regardless of whether the market is rising or falling! But it’s always easy to keep tabs on relative rates with a US currency converter.