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Overall Requirements - Currency Pairs

Given a decision to trade currencies, the trading system need not be able to support any other type of market. Therefore, we can consider currency pairs alone as a starting point and specify requirements related to their representation.

What is a currency pair?

We could consider a currency to be simply a tool used as a means to exchange value. However, when developing a trading system, we are not interested in the transfer of goods or services having value, but in the value represented by one currency in relation to another. So that, within the context of the Foreign Exchange market, we can define a “currency pair” as a means to describe the value of a currency by its comparison to another currency. Granted, this comparison has implications that can extend its meaning. For example, we could consider a currency pair to also represent the perceived value of one country’s economy versus that of another, etc. However, for the purpose of designing a Foreign Exchange trading system, we’re better served with a definition that lends itself to practicality and to this end it is merely a comparative, numerical measure of value.

For historical reasons beyond the scope of this article, the US dollar has formed the basis of comparison between currencies. This means that most common currency pairs are formed by one currency compared to the US dollar.  For example, the EURO compared to the dollar forms a common currency pair written “EUR/USD”.   However, there are also pairs known as “cross currency pairs”.  For example the GBP/JPY cross pair was established to facilitate trading between Great Britain and Japan without having to convert each to the US dollar to determine value.

Initial Considerations

Designing a trading system involves many decisions that will affect not only the usability of the system, but also its scalability and efficiency not to mention the amount of work required to implement and maintain the system.

The first consideration should be the market that will be traded.  This initial choice determines to a large degree the amount of work that will be required, because it is intimately linked with the scalability that would be needed and the degree of preparation that would be required to accommodate this scalability without duplication of logic or the inclusion of shoehorned logic that would inevitably render the system incomprehensible from the point of view of its continued development. Since, this series of articles is about trading currency, the choice is clear. The system will trade multiple currency pairs. This decision by itself defines to a large extent many of the initial requirements.