What are Currency Pairs? Your Ultimate Forex Guide

Trading currency pairs is conducted in the foreign exchange market, also known as the forex market. It is the largest and most liquid market in the financial world. This market allows for the buying, selling, exchanging, and speculation of currencies. It also enables the conversion of currencies for international trade and investment. The forex market is open 24 hours a day, five days a week (including most holidays), and sees a huge amount of trading volume.

Minor Currency Pairs

While not as frequently traded as the majors, these currency pairs are still sufficiently liquid to provide lots of trading opportunities. A currency pair involves two currencies and represents the value of one currency against another. In forex trading, the changing value of a currency pair provides traders with the opportunity to make a profit. The first step to becoming a successful forex trader is understanding what currency pairs are and how they work.

Gain an edge in trading

This lets you make informed decisions about where and how to spend your money. Currencycloud’s currency converter API enables users to integrate exchange rates. The converter provides 24/7 access to currency exchange rates, enabling users to manage and monetize FX with competitive currency exchange rates across hundreds of currency pairs. The most traded currency pairs in the world are called the Majors.

Sometimes the term base currency may also refer to the functional currency of a bank or company, usually their domestic currency. For example, a British bank may use GBP as a base currency for accounting, because all profits and losses are converted to sterling. If a EUR/USD position is closed out with a profit in USD by a British bank, then the rate-to-base will be expressed as a GBP/USD rate. This ambiguity leads many market participants to use the expressions currency 1 (CCY1) and currency 2 (CCY2), where one unit of CCY1 equals the quoted number of units of CCY2. For example, while historically Japanese yen would rank above Mexican peso, the quoting convention for these is now MXNJPY, i.e.

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• The 7 major pairs are EUR/ USD, USD/ JPY, GBP/ USD, USD/ CHF, AUD/ USD, USD/ CAD, and NZD/ USD.
• The reason the dollar is included in all major currency pairs is due to its unique position as the world’s reserve currency.
• Visit the eToro Academy to learn more about currency pairs and forex trading.
• Therefore, trading costs are lower, and market participants can swiftly buy and sell.

EToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading 20 50 and 200 day moving average before committing any capital. Each pair has its own quirks that you will only become familiar with through practice. Most successful traders advise beginners to start with one pair and focus on that pair until you know it inside out.

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A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency. The EUR/USD, or the Euro, is made up of the two most popular currencies in the world.

• Minor currency pairs are less traded compared to major currencies.
• When it comes to trading foreign currency, it is unquestionably essential to ensure that you have identified the most successful tactics overall.
• Each pair has its own quirks that you will only become familiar with through practice.
• The total number of currency pairs that exist changes as currencies come and go.

Selling at the bid price refers to selling the base currency and receiving the quote currency. Despite two transactions, a currency pair equals one unit, traded 24/5 in the decentralized Forex market, the most liquid financial market globally, as an OTC product. Minor currency pairs are less traded compared to major currencies. They don’t involve the US Dollars and are generally less liquid.

This is the price at which you will sell the base currency to the market. Major Forex pairs offer higher liquidity, which attracts even more liquidity. Therefore, trading costs are lower, and market participants can swiftly buy and sell. Since algorithmic trading approaches 80%+ of daily turnover, and high-frequency trading and scalping remain the most deployed strategies, liquidity and trading costs are defining factors.

The Japanese government owns a significant number of US bonds, and any yield changes have a significant impact on their cash flow. I’ve been writing for a broad array of online publications for four years, always aiming to make important insights accessible. It’s my goal to ensure that as many people as possible can make informed decisions about their money, and get the most out of their finances with the least amount of stress. This pair rose in popularity following the rapid development of South Korea in the 1960s.

The general consensus among traders is that currencies with high liquidity, stable economies and robust supply and demand make for stable currencies. There is a positive correlation when two currency pairs move in the same direction. There is a negative correlation when they move in the opposite direction. These factors can be influenced by fundamental factors, including monetary policy and economic and political developments.

It compares the value of one currency against the value of another. These prices will change over time based on factors that affect currency prices. With positive correlation, velocity trade the two currency pairs will move in the same direction with the same fundamental news.

Cross currency pairs are mostly defined by their strong and interconnected economies. For those with a higher risk tolerance, there are the exotic. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

The exchange rates fluctuate based on the changing values of each currency. All high-quality brokers will offer you the opportunity to trade currency pairs, however some brokers are more suited to beginner traders than others. You should look for a broker which offers tight spreads on major pairs, as well as other benefits such as bonuses, demo accounts, educational materials, and low trading fees. Exotic currency pairs involve the US dollar on one side and the currency of an emerging economy on the other, such as Brazil, Mexico, South Africa, and Thailand. Trading exotic currency pairs is considered to be riskier than trading the majors or cross-currency pairs, as price movements can be choppy due to the lower liquidity. Pepperstone is an international forex broker, regulated by the FCA and ASIC.

With approximately 180 legal currencies in the world, there are many potential currency pairs. However, forex brokers tend to offer traders up to 70 currency pairs. The Yuppy generates the largest trading volume of all the yen crosses. However, this currency pair is heavily influenced by risk sentiment and can, therefore, be prone to quick, large movements. The reason the dollar is included in all major currency pairs is due to its unique position as the world’s reserve currency.

Some examples of minor currency pairs include the EUR/GBP, GBP/JPY, and EUR/CHF. The final two currency pairs are known as commodity currencies because both Canada and Australia are rich in commodities and both countries are affected by their prices. The major currency pairs tend to have the most liquid markets and trade 24 speculating vs investing hours a day Monday through Thursday. The currency markets open on Sunday night and close on Friday at 5 p.m. Direct trading of cross-currency pairs accounts for approximately 7% of the global currency trading volume.

They involve the currencies euro, US dollar, Japanese yen, pound sterling, Australian dollar, Canadian dollar, and the Swiss franc. Exotic currency pairs include currencies of emerging markets. These pairs are not as liquid, and the spreads are much wider.

It indicates how much of the quote currency is needed to purchase one unit of the base currency. Interest Rates When a central bank increases its overnight interest rate it can cause increased demand for that currency. This is because investors and traders seek the higher yield which in turn appreciates the currency compared to other currencies. This is compared with the second currency, the quote currency and indicates how much of the quote currency is needed to buy one unit of the base currency. Currency pairs are the exchange rate for two different currencies. It is the price of a domestic currency against another currency.