The EUR/USD is one of the most widely-traded currency pairs in the foreign-exchange market. This currency pair specifies how many dollars are needed to buy 1 Euro. It is affected by price changes in both currencies, but since the base currency is Euro, its value will always be 1, and the value of the USD will be the one changing. The currency pair is affected by many factors, such as interest rate announcements by the European Central Bank (ECB) or the Federal Reserve (Fed) as well as employment housing, retail sales and manufacturing data.
When investing in this pair, a trader can open a short or long position. When opening a long position, the trader hopes that the ratio between the currencies will shift in favor of the Euro, so 1 Euro will be worth more in USD, thus generating a profit when selling the Euro. A short position works similarly, only in this case, the trader hopes that the USD will strengthen against the Euro.
However, shifts in the currency market are measured in very small units known as pips. A pip is the smallest unit of movement to the fourth decimal place, meaning each pip equals 0.01 %. Since traders wish to capitalize even on these small movements, a lot of capital is required to profit from such a shift. Therefore, investment platforms offer leveraged trading, providing traders with credit at a fixed ratio. When trading EUR/USD, a trader should follow relevant announcements and market movements. For example, on December 2016, the U.S. Federal Open Market Committee raised interest rates in the U.S., causing the USD to go up against other currencies. Traders who accurately predicted this announcement, could have opened a short position on the EUR/USD and cash in on the USD.