Forex: How and When do you Buy or Sell a Currency Pair

Trading in currency pair is basically selling and buying money, more specifically a nation’s currency. This currency is treated as a commodity in the forex market. You take a call to buy currency when you are expecting the currency value will increase as compared to the currency you are selling. As for when selling a currency, you expect the value of this to decrease compared to the currency you are looking to buy.

Like every other commodity, currencies are displayed in quotes, based on what is the current market rate. This is also known as the spot rate and gets traded in currency pairs. Buying another country’s currency does not have any physical changes as the transaction happens electronically inside the trading account you hold. Think of this as buying stocks in a public traded company. The forex market is an interbank market instead of having a central exchange like the New York Stock Exchange. So the transactions are all connected together in a chain of banks.

When to buy

When you are buying a currency pair, what you buy is the base currency in exchange of selling the quote currency. So when you are buying EUR/CNY, you are buying euros and selling Chinese yen.

If you are reading trading signals and believe there is a reason for Chinese economy to take a hit, weakening the Chinese Yen, you would execute the EUR/CNY order. The expectation here is that euro will continue to rise whereas yen falls.

When to sell

If you are anticipating that the U.S economy is going to grow stronger whereas euro takes a hit against it, what you will execute is a SELL EUR/USD order. So you have sold euros with anticipation of euro weakening against the US dollar.