The foreign exchange market is one of the biggest markets in the world.
It
is functional 24 hours a day and seven days a week. Before entering the
world of Forex and becoming a trader, it is important that you learn
all there is to know about currency pairs. In this article, we discuss
the aspects of currencies and pairs as well as the major pairs and
correlations.
Trading currency pairs is very popular in the Forex
market. Forex trading involves the simultaneous buying of one currency
and selling of another. A currency pair is considered an instrument that
is bought or sold.
By buying a currency pair, this means you are
buying the "base" currency and selling the "quote" currency. The "base"
currency represents the first currency stated in a currency pair while
the "quote" currency represents the second currency. On the other hand,
when you sell the currency pair, this means you are selling the "base"
currency and receiving the "quote" currency.
Every currency pair
has an exchange rate with a "bid" and "ask" price. The "bid" price is
the rate that the broker will pay for the currency pair while the "ask"
price is the rate that the broker will sell the currency pair.
It's
essential that all traders learn which currency pairs are traded most
often. Actively traded Forex currencies are referred to as "majors".
These are the most frequently traded majors in the world. They include:
• Euro (EUR)
• US Dollar (USD)
• Japanese Yen (JPY)
• Great British Pound (GBP)
• Australian Dollar (AUD)
• Swiss Franc (CHF)
Every
currency has its unique symbol and nickname. These symbols and
nicknames help traders know exactly which currency they are trading when
it comes to a bid/ask quote. Below is a table that represents the
symbol, country and nickname for a few currencies:
Currency Symbol Nickname Country
Australian Dollar AUD Aussie Australia
Canadian Dollar CAD Loonie Canada
Swiss Franc CHF Swissy Switzerland
Euro EUR Euro Eurozone
Great British Pound GBP Cable Great Britain
Japanese Yen JPY Yen Japan
New Zealand Dollar NZD Kiwi New Zealand
US Dollar USD Buck United States
Major
Forex pairs refer to major currencies that are paired with the USD. For
instance, if the Great British Pound is paired with the USD, the quote
automatically becomes a major pair. This therefore clarifies that the US
Dollar is indeed the most stable, reliable and therefore popular
currency in the world.
For a very long time, the USD has been the
most popular currency to trade and most currencies are paired with the
dollar for this reason.
One of the most popular pairs to trade is
the US Dollar and the Euro. It is the most liquid currency pair and it
offers very low bid-ask spreads. This pair is also rather volatile which
is an additional advantage for traders as it gives them a chance to
capitalize and make money from any sudden changes.
Another popular
currency to trade in the Forex market is the US Dollar and Japanese
Yen. The relations between the US and the Far East have made this pair
quite profitable because of the slight volatility. The Dollar/Yen
currency major is considerably versatile, making it one of the best
currency majors to rely on.
There are many major pairs that are
correlated in their price movement. This means they move almost
identical to each other. For example, the EUR/USD has a negative
correlation with USD/CHF and a positive correlation with the GBP/USD.
It's always great to know which currency pairs are actively traded as this can help you have a strong head start in your forex trading experience.
