Each forex transaction involves the buying of one currency and the selling of another. For example, you might buy euros (EUR) while selling US dollars (USD). This transaction is often referred to as buying the EUR/USD currency pair.
Currency pairs are needed to create exchange rates, which tell you the value of one currency relative to another. For example, if the EUR/USD currency pair had an exchange rate of 1.3500 it would take $1.35 to exchange for 1 euro. If the EUR/USD currency pair had an exchange rate of 0.9500 it would take $0.95 to exchange for 1 euro. Forex traders essentially speculate on exchange rates by buying or selling currency pairs. The decision to buy or sell is determined by whether they think the exchange rate will go up or down.
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