The currencies are traded against each other in one simultaneous
transaction. For instance, you may believe that the EUR will strengthen versus
the USD over the next few days. You might place an order to Buy 1 EUR/USD.
Buying one EUR/USD leverages $100,000 worth of currency. To exit this trade
you would Sell 1 EUR/USD and your trade would realize a loss, gain or break
even depending on the currencies’ movements versus each other.
Now let’s presume that you believe that the JPY will strengthen against
the USD. You might sell 1 USD/JPY which leverages $100,000 worth of currency.
Please not that the most valuable currency is listed first in the trade first. In
other words, you would not buy 1 JPY/USD to accomplish your speculation that
the JPY will strengthen versus the USD. The first currency is referred to as the
base currency and the latter is called the counter or quote currency.
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