Currency Pairs: What you need to Know
Before trading in the forex market, you need to know what currency pairs are. You can refer to authentic reviews such as ECN Broker Review for in-depth details.
In the forex market, you trade with two currencies at a time. It is the buying of one currency and the simultaneously selling of another with the help of an International Broker. That’s why we see currencies are quoted in pairs when they are traded.
Imagine each currency pair is on a seesaw. Exchange rates fluctuate constantly based on which currency is stronger at the moment. So when currency A is stronger, its value goes up while its counterpart currency goes down.
The base currency is located the left of a currency pair. The currency to the right is called the quote currency. The quote currency shows how much it is worth against one unit of the base currency.
The basis for the buy or sell trade is the base currency. For example, if you think the GBP will increase its value against the USD, you’d buy the GBP/USD pair. That means you’re buying the base currency, and selling the quote currency at the same time.
Major Currency Pairs
This is a type of currency pairs that consist of the most frequently traded currencies in the forex market. These pairs all have the USD on one side. In addition, the majors are the most liquid and widely traded currency pairs in the world. The EUR/USD is the most traded pair with a daily volume of nearly 30% of the entire FX market.
- EUR/USD – Euro/US dollar
- USD/JPY – US Dollar/Japanese yen
- GBP/USD – British pound/US dollar
- USD/CHF – US dollar/Swiss franc
- USD/CAD – US dollar/ Canadian dollar
- AUD/USD – Australian dollar/US dollar
- NZD/USD – New Zealand dollar/US dollar
Minor Currency Pairs
These are the currency pairs that do not contain the US dollar. These are also known as cross-currency pairs or simply as the crosses.
The most active crosses are derived from the three major non-US dollar currencies, which are the Euro, the UK pound, and Yen.
Here are a few minor currency pairs:
- EUR/GBP – Euro/British pound
- EUR/AUD – Euro/Australian dollar
- GBP/JPY – British pound/Japanese yen
- CHF/JPY – Swiss franc/Japanese yen
- NZD/JPY – New Zealand dollar/Japanese yen
- GBP/CAD – British pound/Canadian dollar
Exotic Currency Pairs
Exotic currency pairs consist of one major currency paired with the currency of a developing economy, such as Brazil, Mexico, or South Africa. Exotic pairs are not common as the major and minor currency pairs. Exotic pairs have spreads that can be higher when trading them.
A few examples of them:
- EUR/TRY – Euro/Turkish lira
- USD/HKD – US dollar/Hong Kong dollar
- JPY/NOK – Japanese yen/Norwegian krone
- NZD/SGD –New Zealand dollar/Singapore dollar
- GBP/ZAR – British pound/South African rand
- AUD/MXN – Australian dollar/Mexican peso
In choosing a currency pair, you have to consider its type. For beginners, the major pairs are ideal because of their low spreads and easy analysis. Minor pairs require intermediate experience, and exotic pairs require a significant amount of experience.
Remember that currencies are also traded through a broker with its online trading platform. A broker can help you with your forex trades especially if you want to trade in minor and exotic pairs.