If you want to start forex trading, learning about the currency pair is imperative. Trading pairs have a major role in forex trading, and without knowing them, you cannot become an expert in forex trading.
All the forex brokers offer a wide range of trading pair options. But you need to be highly attentive while picking the right currency pair for trading; otherwise, you may have to face many challenges. Mainly, if you are a beginner, you must be more careful and analyze all the factors. So, here we will discuss the details about the currency pair.
Currency pair is defined as two currencies’ quotations, and one currency’s value is quoted related to the other. The first currency in this pair is named the base currency. On the other hand, the other currency in the pair is called the quote currency.
So, we compare both currencies’ value ( base currency with the quoted currency) in this pair. It shows how much quoted currency you must have for buying one unit of base currency’s one unit.
All the currencies have an ISO currency code that helps in their identification. This code has three alphabets as the British pound is named GBP.
Comprehending Currency Pairs
Trading of currency pairs takes place in the forex market. It is worth mentioning that it is the biggest financial market and has the most liquidity.
In this market, the selling, buying speculations and exchanging of different currencies occur. Moreover, it allows the conversion of currencies for investment and trade internationally.
In the forex trade, the traders buy one currency and sell the other, but the whole currency pair works like a single unit. So, whenever you purchase a currency, it is the quote, and when you sell it, it is the base currency.
But when you are involved in trading the stocks or commodities, you utilize the cash to purchase several shares or the unit of that particular commodity.
Various factors can affect the trading pair, including economic growth, interest rates, or gross domestic product (GDP).
Tips for trading currency pairs
You need to be highly careful while choosing the currency pairs. If you pick any currency pair randomly, you will suffer a lot. So, here we will enlist some expert tips that will surely assist you.
It is better to go for more liquid currency pairs such as USD/JPY and EUR/USD if you are a beginner.
Leverage is immensely significant, and it can either result in profit or loss. Hence, always choose it carefully.
- Pick the right time for trading to get maximum benefit.
- A trading strategy can also play a key role in easing your trading.
Types of Currency Pairs
Many currency pairs exist globally; we can not give an exact number because it keeps on changing owing to the introduction of new currencies and the extinction of old ones. But the value of every currency pair is different and relies upon its trading volume.
Therefore, we divide the currencies into multiple types depending upon their trading percentage.
Major Currency Pairs
If a currency trades the most volume against USD, it will be named a major currency.
The EUR/USD is the most traded currency pair throughout the world. In addition, this currency pair has the most liquidity as well. EUR is called the base currency in this currency pair, while USD is named the base currency. So, it shows that we can exchange 1EUR for 1.25 USD.
Other currencies included in this category are mentioned below:
- Commodity Currencies
AUD/USD and USD/CAD currency pairs are also named commodity currencies. The reason behind this is that both countries( Canada and Australia) have an abundance of commodities; that’s why they got affected by it.
Minor Currency Pairs
If a currency pair has no association with the USD, it will be named a minor currency pair. Although these currency pairs are liquid but less than major pairs, they also have comparatively wider spreads.
All the minor currency pairs have the individual currencies of major pairs involved in them. The examples of minor currency pairs include GBP/JPY, EUR/GBP, EUR/CHF.
Exotic Currency Pair
The currency pairs belonging to emerging markets are named their exotic currency pairs. They have more spread compared to the major and minor currencies. Additionally, they are the least liquid.USD/SGD is the example.
Well, that’s all about the currency pair. We must say that the forex market is volatile, and you must gather as much information as you can. So, do research and know everything related to forex trading to succeed in your career. Which currency pair do you like the most and why?