When do you buy or sell a currency pair?

Every trade starts with one button: buy or sell. You buy a currency pair when you expect the first currency to gain value against the second, and you sell when you expect it to lose value.

The harder part comes when your opinion is about a single currency, such as "the yen will weaken". You then have to pick a pair and work out which button matches your view.

What does a buy or a sell say about your view?

Take EUR/USD at an illustrative price of 1.10000. That price means one euro costs 1.10000 US dollars. If you think a euro will soon cost more dollars, you buy, and if you think it will cost fewer, you sell.

The euro here is the base currency, the first one in the pair, and the dollar is the quote currency. A rising price always means one unit of the base buys more of the quote.

That gives one rule for every pair:

• Expect the base to strengthen against the quote: buy, also called going long.
• Expect the base to weaken against the quote: sell, also called going short.

Selling first is normal in forex. You do not need to own euros to sell EUR/USD, because a retail trade is a contract with your broker. You open with a sell and close later with a buy.

The lesson on how a forex trade makes or loses money shows how the result of each kind of trade is calculated.

Why can a pair move because of either currency?

A pair's price compares two currencies, so it changes when either one changes. EUR/USD can rise because the euro gains in general, because the dollar loses, or both at once.

A buy on EUR/USD is therefore a bet on the euro relative to the dollar. Being right about the euro on its own is not enough.

Here is an illustrative day. The euro gains 0.3% against the yen, and the dollar gains 0.8% against the yen.

The euro had a good day, yet EUR/USD falls. The pair moves by the ratio of the two changes: 1.003 ÷ 1.008 = 0.995, a fall of about 0.5%.

Before any trade, ask which of the two currencies you expect to do better from here. The lesson on pairing a strong currency with a weak one builds on this idea.

How do you turn a view on one currency into a trade?

Most opinions start with one currency. You might read that a central bank may cut rates and decide its currency looks weak. The pair you choose then decides which button you press.

Three steps turn that opinion into an order:

1. Find where your currency sits in the pair, on the left or on the right.
2. On the left, it is the base: buy if you expect it to strengthen, sell if you expect it to weaken.
3. On the right, it is the quote and the logic flips: a weaker quote currency lifts the pair, so you buy, and a stronger one pushes it down, so you sell.

Here is one view, that the US dollar will weaken, applied to four major pairs:

The same check works for any currency. If you expect the yen to weaken, USD/JPY and EUR/JPY should both rise, so you would buy either one.

Each pair also carries a view on its other currency. Buying EUR/USD and buying GBP/USD both bet against the dollar, yet one also bets on the euro and the other on the pound.

Worked example: one dollar view, two trades

Say you expect the dollar to weaken over the next few days. Both trades below express that view. The prices are illustrative, and the spread is left out to keep the arithmetic clear.

Both trades use 0.10 lot, which is 10,000 units of the base currency.

Trade A: sell USD/JPY

1. You sell 0.10 lot of USD/JPY at 150.00, a position of 10,000 dollars.
2. You buy it back at 148.50. The price fell by 150.00 − 148.50 = 1.50, in your favour.
3. On yen pairs a pip, the standard price step, is 0.01, so 1.50 is 150 pips.
4. One pip on 10,000 dollars is 10,000 × 0.01 = ¥100, so the gain is 150 × ¥100 = ¥15,000.
5. In a US dollar account at 148.50, that is 15,000 ÷ 148.50 = $101.01.

If the dollar had risen instead and you closed at 151.00, the result would be 150.00 − 151.00 = −1.00, or −100 pips. That is −¥10,000, or 10,000 ÷ 151.00 = $66.23 lost.

Trade B: buy EUR/USD

1. You buy 0.10 lot of EUR/USD at 1.10000, a position of 10,000 euros.
2. You sell it at 1.10800. The price rose by 1.10800 − 1.10000 = 0.00800.
3. On this pair a pip is 0.0001, so the move is 80 pips.
4. One pip on 10,000 euros is 10,000 × 0.0001 = $1.00, so the gain is 80 × $1.00 = $80.00.

Both trades made money because the dollar fell in this example. The amounts differ because the yen and the euro had their own moves too.

Had the yen weakened faster than the dollar, USD/JPY would have risen and Trade A would have lost, even with your dollar view correct. You can rerun these sums with other prices in the profit and loss calculator.

What should you settle before you press buy or sell?

A buy or sell is a forecast, and forecasts are often wrong. The direction is only one of the choices a trade needs.

Traders form their expectation from price charts, from economic news and data, or from how other traders are positioned. The three types of analysis lesson compares these approaches.

None of them predicts short-term moves reliably. Evidence that any of them gives a lasting edge after costs is mixed, so treat every direction call as a guess you can test.

Before you open a trade, decide:

• the reason you expect this direction, in one sentence you could write down
• the price at which that reason is proven wrong, where a stop loss would close the trade
• a position size whose loss at that stop you can accept
• whether the move you expect is large enough to cover the spread and other costs

Price level alone is no reason to buy or sell. USD/JPY near 150 is not expensive and EUR/USD near 1.10 is not cheap, because each number only reflects the size of the currency units. A pair that has already fallen far can keep falling.

A demo account lets you practise choosing a direction and an exit with virtual money before any real money is at risk.