If you’re a forex trader, you may have noticed that some currency pairs have a “b” at the end of their symbol. For example, instead of USD/EUR, you might see USD/EURB. So, what does this “b” mean?
First, let’s start with the basics. In forex trading, currency pairs are denoted by a three-letter code, with the first two letters representing the country and the third letter representing the currency. For example, USD stands for United States Dollar, and EUR stands for Euro.
The “b” at the end of a forex pair symbol, such as USD/EURB, stands for “broken.” A broken currency pair refers to a currency pair that is not traded in the standard way. Instead, it is traded as two separate currency pairs.
Let’s use the USD/EURB example again. This currency pair is broken because it is actually made up of two separate currency pairs: USD/EUR and USD/GBP. The exchange rate for USD/EURB is calculated using the exchange rates of USD/EUR and USD/GBP.
So, why do some currency pairs need to be broken? There are a few reasons.
First, some currency pairs may not be directly tradable in the forex market. For example, the Indian rupee (INR) is not widely traded outside of India. Therefore, if you wanted to trade the INR against the USD, you would have to do so indirectly by trading USD/INR and USD/xxx, where xxx is another currency that is widely traded against the USD.
Second, some brokers may not offer certain currency pairs as a single pair. Instead, they may offer them as a broken pair. This allows traders to still trade these currency pairs, even if they are not offered in the standard way.
Third, some traders may prefer to trade broken currency pairs for various reasons. For example, a trader may want to take advantage of a certain market condition in one of the currencies in the broken pair. By trading the broken pair, the trader can still take advantage of this opportunity without having to trade the other currency in the pair.
So, how do you trade a broken currency pair? It’s actually quite simple. Let’s go back to the USD/EURB example. To trade this pair, you would first need to look at the exchange rates for USD/EUR and USD/GBP. Let’s say the exchange rates are 1.20 for USD/EUR and 1.40 for USD/GBP.
To calculate the exchange rate for USD/EURB, you would need to divide the exchange rate for USD/EUR by the exchange rate for USD/GBP. In this example, that would be 1.20 / 1.40 = 0.8571.
So, the exchange rate for USD/EURB would be 0.8571. If you wanted to buy USD/EURB, you would be buying USD/EUR and selling USD/GBP at the same time. If you wanted to sell USD/EURB, you would be selling USD/EUR and buying USD/GBP at the same time.
In conclusion, the “b” at the end of a forex pair symbol stands for “broken.” Broken currency pairs are made up of two separate currency pairs and are traded using the exchange rates of those pairs. There are several reasons why a currency pair may need to be broken, including the fact that it may not be directly tradable or that a broker may not offer it as a single pair. However, trading broken currency pairs is just as easy as trading standard pairs, and can offer traders more flexibility and opportunities in the forex market.
