Forex, the Largest Market in the World

Exchange rates are quoted in pairs. A pair always includes two currencies, such as the EUR/USD currency pair. The first currency is called the base currency and the second is the reference currency, or counter currency. The base currency forms the basis of every purchase or sale. If you buy the EUR/USD currency pair, you are buying euros (and simultaneously selling dollars). You make this type of trade when you expect the euro to increase in value relative to the U.S. dollar. 

If the EUR/USD currency pair is trading at 1.24502, it means that the value of a euro is 1.24502 U.S. dollars (1 dollar and 24.502 cents). Let’s assume that you buy the currency pair at this price with the expectation that the price will go up. Then you can sell the currency pair for more money than you bought it for if the price goes up.

EUR/USD 
In this example the euro is the base currency and thus the basis of every purchase or sale: 

If you think that the US economy is going to remain weak and that the value of the U.S. dollar will fall, you can issue a EUR/USD buy order. By placing this order, you are buying euros in the expectation that the euro will continue to gain in value over the U.S. dollar. On the other hand, if you think that the United States economy will improve and that the euro will lose ground to the U.S. dollar, you could place a EUR/USD sell order and sell euros expecting that the euros will lose value against the U.S. dollar.

USD/JPY 
In this example the U.S. dollar is the base currency and thus the basis of every purchase or sale:

If you think that the Japanese government intends to devalue their national currency, the yen, to aid exports, then you would place a USD/JPY buy order. 
It means that you are buying the U.S dollar in the expectation that it will increase in value relative to the Japanese yen. On the other hand, if you expect Japanese investors to pull their money out of US financial markets and transfer it to Japan, and that this would lower the value of the U.S. dollar, you would place a USD/JPY sell order. By placing this order, you are selling U.S. dollars in the expectation that the U.S. dollar will fall in value over to the Japanese yen.

GBP/USD 
In this example the British pound sterling is the base currency and thus the basis of every purchase or sale: 

If you assume that economy of the United Kingdom will grow to become one of the leading in the world and you want to buy British pounds, you would then place a GBP/USD buy  order. By placing this order, you are buying British pounds in the expectation that the pound will gain in value over the U.S. dollar. On the other hand, if you think that the British want to introduce the euro, which would initially weaken the pound, you would place a GBP/USD sell order. By placing this order, you are selling British pounds in the expectation that the pound will lose value relative to the U.S. dollar.

EUR/CHF 
In this example the euro is the base currency and thus the basis of every purchase or sale: 

If you think that the Swiss franc is overvalued, you would place a EUR/CHF buy order. By placing this order, you are buying euros in the expectation that the euro will gain in value over the Swiss franc. On the other hand, if you think that the Euro will be weakened by the dismal condition of various EU states, you would place a EUR/CHF sell order. By placing this order, you are selling euros in the expectation that the euro will lose value relative to the Swiss franc.