ISO Codes
Currencies, as stocks, are not referred by their full name; they are standardized for easier
reference.The International Standardization Organization (ISO) developed what is called ISO
Codes for Currencies. The ISO currency codes are made of three letters:
• The first two letters represent the abbreviation of the country of each currency,
and, The last one represents the first letter of the country’s currency (dollar, franc,
etc.) Currencies can also be called by their nickname.
ISO Codes for the Major currencies traded in the Forex market are
* CHF - Swiss Franc, CH stands for Confederatio Helvetica, the Latin translation. This avoids choosing
* EUR - euro which is the currency of the European countries aside U.K
* USD - Dollar United States of America
* CAD- Canadian Dollar
*JPY - Japanese Yen
*AUD - Australian dollar
*GBP - Great Britain Pound
These are the seven major currencies that form all the transactions involved (volume) in the Forex market, 85% is produced by these seven majors. There are others currencies traded in the Forex market but as i earlier mentioned, these seven constitute 85% of the trades that are executed everyday.
Important to note is that these currencies can not be traded in isolation, therefore we should always remember that these currencies are paired together
It is easier to consider currency pairs as main instruments. For instance, you are expecting
the EUR to appreciate; you go long EUR (EUR/USD). What you are doing here
is buying the EUR and selling the USD. But it is not practical to view it that way. It is
easier to consider the EUR as the main instrument, so that you will only say “I am long
Euro”.
On the other side, if you are expecting the dollar to appreciate. You will go short EUR
(EUR/USD) here you are selling the EUR and buying the USD. You would say here, “I
am short EUR”.
Direct and Indirect Quotes
Every local currency can be quoted directly or indirectly against other currencies (most
of the time the US Dollar):
Direct quotation: Amount of local currency that is needed to buy one unit of the foreign
currency (most commonly the USD)
And, indirect Quotation: Amount of local currency that is to be received when one unit of the
foreign currency is sold.
Ok, now imagine your local currency is the EUR, in this case the quotation scheme
against the US Dollar would be: Direct Quotation: USD/EUR – How many Euros to get one US Dollar
And, Indirect Quotation: EUR/USD – How many US Dollars to get one Euro
For the sake of simplicity, sometimes the US Dollar is called the “Foreign Currency”, so
for the majors we have the following:
Direct Currencies
- USD/JPY
- USD/CAD
- USD/CHF
