Currency Pair – Introduction, Effects, Tips, and More

Introduction

Currency Pair – Currencies are always traded here in pairs. In other words: if you buy one foreign currency, you automatically sell the other currency in the team.

Currency pairs are written using abbreviations and in a well-defined order, first the base currency and then the counter currency. A slash usually separates the two coins, sometimes omitted.

Example: If you want to buy Euro with US Dollar, you should buy EUR/USD (EURUSD) currency pair. In this case, the euro is the base currency, and the US dollar is the counter currency. Traders are also talking about the euro “versus” the US dollar.

Major currency pairs (major pairs) always include the US dollar. Although the US dollar is slowly losing its importance, it is still the virtual currency in the world. The major currency pairs are also suitable for beginners in forex trading, as the liquidity is high and the spreads are small.

Examples of Major Currency Pair:

• EURUSD: Merging with the Euro. It is the most popular currency pair.
• USDJPY: Combination with the Japanese yen, also known as the yen. It is the second most popular currency pair.
• GBP USD: Combination with the British Pound, also known as the cable. It is the third most popular currency pair.
• AUDUSD: Merging with the Australian Dollar, also known as the Australian Dollar.
• USDCAD: A combination with the Australian Dollar, also known as the loonie.
• USDCHF: Mix with the Swiss franc, also known as the Swiss franc.
• NZDUSD: Merging with the New Zealand Dollar, also known as the Canadian Dollar.
• Currency cross pairs combine the two major currencies but never include the US dollar.

Currency Pair – Examples of Cross Coins:

• EURGBP: Combination of Euro and Pound Sterling.
• EURCHF: Combination of Euro and Swiss Franc
• EURCAD: Combination of Euro and Canadian Dollar.
• EURJPY: Combination of Euro and Japanese Yen.
• GBPCHF: Combination of British Pound and Swiss Franc.

Foreign currency pairs (foreign or minor) consist of at least one currency that is not classified as a base currency. Mini currency pairs are unsuitable for beginners in forex trading as low liquidity and wide spreads.

Here are Examples of Cross Coins:

• USDSGD: The primary currency is the US dollar and the Singapore dollar.
• USDSEK: The central money is the US dollar and the Swedish krona.

Currency Pair Definition

Now that we know how a coin cross is read let’s look at how it is interpreted. In other words, if we see EUR/USD trading at 1.10 or USD/JPY trading at 130? The number sold tells us how much the quote currency changes per unit of the base currency. For example:

EUR/USD is trading at 1.10, which means that $1.10 (USD) is exchanged for 1 euro (EUR). From another angle, we can say that for every euro (EUR), they bring us $1.10.

What Affects the Prices of the Major Currency Pair?

The main fundamentals affecting currency pairs are changes in overnight interest rates by central banks, economic data, and politics.

Interest rates – Central banks assume the maintenance of monetary and financial stability, and they do this by influencing interest rates. When the central bank increases the overnight interest rate, it causes an increase in the demand for that currency because investors and traders seek a higher return which raises the currency value compared to other currencies.

Economic data – Economic data are reports that give traders a glimpse into a country’s economic performance. Critical financial data that influences currency rates include CPI (inflation), non-farm payroll (employment data), gross domestic product (GDP), retail sales, purchasing managers index (PMI) and others.

Politics – Trade wars, elections, corruption scandals and policy changes lead to instability reflected in the forex market. The government can influence the economy, which can either enhance or reduce the currency’s relative value.

Volatility – Traders usually take smaller trades on the most volatile currencies and larger trades on less volatile positions. Volatility can hit any of these pairs at any time due to sudden changes in interest rates, drastic changes in economic expectations, or political instability. Following the pages above are dedicated to these markets for the latest news and analysis is essential.

Tips for Trading Currency Pair

Forex traders use discipline and consistency in their trading. Here are some professional tips for getting started in forex trading:

• If you are new to forex trading, choose currency pairs with liquidity such as EUR/USD or USD/JPY. Then analyze the fundamentals and techniques to learn what moves currency pairs.
• Determining the appropriate leverage is of fundamental importance when trading currencies. Lots of novice forex traders wipe out their accounts because they are using excessive power.
• A forex trading strategy can help ensure traders’ consistency and discipline, leading to profitability and deterring loss-making behavior. Read the Traits of Successful Traders Guide to avoid traders’ first mistake.
• Choose the best trading time frame that suits your needs. You can choose from swing trading, day trading, or scalping, depending on which one is more attractive to you.
• Use our free trading forecasts on significant currencies to stay ahead of the forex market. Check out our forex market news and technical analysis articles for daily updates on the major forex pairs.

Conclusion

A currency pair is the quotation of two currencies, where one is quoted against the other. The first currency included in the currency pair is called the base currency, while the second currency, the benchmark, is called the quotes.

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