What is currency trading?
Currency trading consists of two parts. The first currency in a currency pair is called the base currency. The base currency is the currency that, according to the trader, will rise or fall in relation to the second currency in the pair. This second currency is called a quoted or counter-currency. Currency trading is divided into two parts. For example, if you buy the pound sterling against the US dollar (GBP/USD), you expect the pound sterling to rise at the expense of the US dollar. Gains and losses when trading on the Forex market are usually expressed in the amount of secondary currency.
How Currency Pairs Work
When trading currencies, it is better to have a basic understanding of the currency before deciding to trade, and understanding how currency pairs work is the best start.
As already mentioned, a currency pair is a quote that compares the value of two currencies in relation to each other. The relative value of a currency pair is expressed in how much the first currency costs compared to the second. In other words, how many units of the second currency are needed to buy one unit of the first currency.
For example, for the EUR/USD = 1.219 currency pair, this means that a trader will need $1.219 to buy 1 euro. This also means that the value of the euro is higher than the value of the dollar by 0.219, and, accordingly, the EUR/USD exchange rate is equal to 1.219.
In the process of trading, traders determine which pairs they want to buy or sell in accordance with changing rates. In the example of the EUR/USD pair, a trader can buy this pair if he assumes that the value of the euro will increase compared to the US dollar.
On the other hand, a trader can sell the same pair if he assumes that the US dollar will rise in comparison with the euro.
Another point worth paying attention to when working with currency pairs is the currency correlations of pairs. Currency pair correlation is the similarity between several pairs, and it is useful in determining which pair to buy or sell.
7 major forex pairs
There are many currency pairs from which traders can choose when making deals on the Forex market. The main currency pairs include all pairs that include the US dollar (USD). The main pairs are the most widely traded currencies in the foreign exchange market.
- Euro and US Dollar: EUR/USD
- US Dollar and Japanese Yen: USD/JPY
- British Pound and US Dollar: GBP/USD
- US Dollar and Swiss Franc: USD/CHF
- Australian Dollar and US Dollar: AUD/USD
- US Dollar and Canadian Dollar: USD/CAD
- New Zealand Dollar and US Dollar: NZD/USD
75% of all transactions in the Forex market are made with the main pairs. In the Forex market, the main pairs are the most liquid and frequently traded. They account for the lion’s share of all currency transactions. Due to the large number of buyers and sellers, these pairs often have the narrowest buy and sell spreads. There is a spread between the purchase price and the sale price. Most traders agree that the seven major currency pairs mentioned above are the most profitable to trade.
Forex pairs with the most pips
The final symbol after the decimal point, together with which this or another money direction is usually quoted, is called a point (share in place). Certain online Forex service providers usually determine the spread among the prescription and also the prescription according to the key money counts no more than 1 place, and also realized cross rates in standard bazaar circumstances.
In the presence of currency trading, traders often find money vapors together with maximum point values, as they can be very useful for the purpose of short-term strategies, such as day trading. The price of any spot is dependent on the lot volume as well as the specific unit of money you are trading with. Pips also have all chances to be useful in order to pay off the amount of plastic leverage that the trader is able to apply in the presence of foreign currency trading.
Section – this, as well as the principle, the 4th number already after the decimal point in the monetary two. Thus, if the euro/dollar pair (EUR/USD) changes from 1.0630 to 1.0631, this will indicate a move to a single section. The size of the place in the key two Forex sets the amount of income or loss that the trader will acquire in the consequence of a single operation.
Benefits of the Forex 7 Major Pairs?
Here are three advantages of trading major currency pairs:
- Large trading volume. Due to the large trading volume, these pairs tend to have narrower spreads than other pairs, which attracts most traders.
- These pairs are universal, that is, traders can trade them at any time of the day and on any day of the week, including holidays.
- They are stable, which means that prices for one currency pair are not subject to sharp fluctuations. The relationship between currency prices in pairs is also stable, which attracts most traders.
- Narrow spreads allow traders to enter and exit at any time without risking losses.
Correlation in forex currency pairs
Around the correlation of money evaporation means similarity among different pairs. In Forex trading, no one monetary pair is traded entirely independently of the others. The perception of interconnected power in Forex trading is expedient in the presence of backpack management. For example, trading currency against the Japanese yen (EUR/JPY pair), the trader is essentially trading the output with the strength of the euro-dollar (EUR/USD) and dollar-yen (USD/JPY). Thus, the EUR/JPY pair must somehow correlate along with one or two other monetary pairs.
For this purpose, in order to preferably realize the correlations of monetary units, it is advisable to understand the relationship among monetary pairs. It is possible to investigate whether the units are negatively or favorably correlated, as well as the possibility that they will move in one direction, in opposite directions or completely randomly.
How to trade forex successfully starting with one pair?
Due to the constant fluctuations in the value of currencies relative to each other, Forex trading provides several trading opportunities. Forex trading allows investors to place bets on all significant currency pairs. The only limitation for trading currency pairs are the pairs and the number that each trader chooses from the offered trading platforms.
There are three main categories of currency pairs: major, minor (crosses) and exotic. Due to the high liquidity, the main currency pairs are the most frequently traded. This means that most deals are made on these pairs. Secondary currency pairs are pairs that do not include the US dollar and which, as a rule, are less liquid. Examples include the Canadian dollar and Japanese yen (CAD/JPY), euro and Swiss franc (EUR/CHF), pound sterling and Australian dollar (GBP/AUD). When major currency pairs are trading in less favorable conditions, cross-pairs can provide trading chances.
In addition, there are unusual currency pairs. These are the least liquid and least traded currency pairs on the Forex market. Since the trading volume on them is small, spreads can be very wide, and prices can fluctuate greatly. In addition, there is usually less historical data for these pairs, which complicates the search for information for those who rely on technical analysis.
Which Forex pair is the most predictable?
The movement of major currency pairs is often more predictable in the foreign exchange market due to the huge amount of knowledge and research accumulated by traders over many years. For example, EUR/USD is one of the most traded currency pairs in the world by trading volume, and therefore traders tend to understand this pair better than more exotic crosses. See our guide to the most traded currency pairs.
What strategies can I use to trade on currency pairs?
There are several strategies that can be used when trading currency pairs, depending on the duration of the transaction, the specific pair and the size of the position. Check out our list of Forex trading strategies to find the one that suits your preferences and goals.
Which currency is the safest to trade?
There is no certain “safest currency” for trading, since the Forex market is characterized by liquidity and often volatility. However, some currencies have a higher value than others and can serve as a safe haven for investors during periods of instability. Check out our guide to the 16 strongest currencies in the world.
How many pairs are there in the Forex market?
We offer more than 330 currency pairs for trading on our trading platform, including major, minor and exotic cross-rates. You can make spread bets or trade CFDs on our currency pairs: visit our Forex trading page for more detailed information about the cost, spreads and margin rates.
A wide spread between currencies indicates volatility, while a narrow spread means a smaller difference between the buy and sell price. Most traders prefer a narrower or narrower spread as it indicates lower volatility but high liquidity. Our Forex trading page provides information about all the spreads and margins that we offer for our currency pairs.