This is the basic step in currency/forex trading. We deal with a lot of currencies here and reading the currency pairs wrongly would cost a lot of money. In forex trading, currency is always stated in pairs. For example, EUR/USD, USD/JPY etc. It is because we will be buying a currency and simultaneously selling the other.
Let us take an example and learn more in detail. The value is just an example and in real time the USD/JPY pair has a different value.
USD/JPY = 1.4500
The currency before the '/' is called the 'Base Currency' and the second currency is called the 'quote currency'. In our example, USD is the base currency and JPY is the quote currency.
When buying, the exchange rate indicates how much we have to pay in units of the quote currency to buy one unit of the base currency. In our example, we have to pay 1.4500 JPY(Japanese Yen) to buy 1 USD(US dollar).
When selling, the exchange indicates how much of the quote currency we get for selling one unit of the base currency. In our example, we will get 1.4500 JPY(Japanese Yen) when we sell 1 USD(US dollar).
It always means that you are buying the base currency and simultaneously selling the quote currency.
When to buy and Sell the Base currency?
We buy the base currency when we think it will increase (appreciate) relative to the quote currency.
We sell the base currency when we think it will decrease (depreciate) relative to the quote currency.
For example, we will buy USD/JPY if we are sure that the exchange rate for USD will increase relative to the JPY.
What is Long and Short w.r.t Forex trading?
It is very simple, Long=Buy and Short =sell.
'Going long' in forex means you are buying the base currency and selling the quote currency which is nothing but 'buying' the currency pair.
'Going Short' in forex means you are selling the base currency and buying the quote currency which is nothing but 'selling' the currency pair.
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