When trading in Forex, currencies are traded in pairs. The numerator is known as the base currency and the denominator is known as the ‘quote’ or ‘counter’ currency. Each currency has a three letter acronym (rather like an airport code) and currency pairs are expressed like this: base currency/counter currency. So for example, USD/EUR is a trade in which US dollars are the base currency and Euros the counter.
It is possible for Forex traders to trade in any combination of currencies they wish but in practice most of them stick to a small number of currencies which are considered to be low risk i.e. they are both economically and politically stable. That has been slightly more difficult to predict of late, given the global recession but, on the whole, the currencies have remained fairly stable despite the fluctuations in individual countries’ economic prosperity.
The eight most commonly traded currencies are the Euro (EUR), British Pound (GBP), US Dollar (USD), Swiss Franc (CHF), Japanese Yen (JPY), Australian Dollar (AUD), Canadian Dollar (CAD) and New Zealand Dollar (NZD).
Theoretically, a Forex trading platform will see any combination of these currencies being traded but in practice, there are some trades that are more frequent than others. This makes these currency pairs more liquid and therefore easier to trade. The beginner to Forex trading is probably better off sticking to some very common currency pairing such as EUR/USD or GBP/USD to minimise risk and gain an understanding of how Forex trading platforms work.