Most people know how to trade forex and that currency pairs are traded in pairs, and a trader can make a profit when the value of one currency changes against another. But which currency pairs to trade? And what are the differences between them?
Below are the major currency pair we have in the foreign exchange market..
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Major currency pairs are pairs that consist of a major currency and the US dollar, such as:
– EUR / USD – One of the most well-known pairs is the Eurozone and United States of America currency pair. The euro zone is made up of all the European countries which have adopted the euro as their main currency (because of their membership of the European Union). Also known as Euro-dollar.
– USD / JPY – Another high volume pair, this is the ISO currency pair for the US and Japan, traders in the market have adapted to call it the dollar-yen.
-GBP / USD – Following the trend of having the US dollar on one side of the pair, the UK and US pair is sometimes referred to as the British pound. Traders are also known to call it simply “pound sterling” or “cape”.
– USD / CHF – This pair has one of the funniest nicknames of all, commonly referred to as ‘Swissy’. The currency pair represents the currencies of the United States and Switzerland, and its long name is the Swiss dollar.
Characteristics of the major currency pairs include:
• Many major currency pairs move in similar patterns – for example EUR / USD and GBP / USD usually move in the same direction, so if one moves higher or lower the other is likely to follow the same trend, although the GBP / USD pair is a bit more volatile.
• The CHF being another European currency, it also evolves in correlation with the EUR and the GBP. As the main currency pair is USD / CHF (the US dollar being the first named currency), it means that it will move in a negative correlation with EUR / USD and GBP / USD, therefore it will tend in the opposite direction.
EUR / USD is the most traded pair, accounting for around 27% of total trading volume, so it is also the most liquid of the major currency pairs. This is also the pair that many beginners feel most comfortable with – due to its liquidity it is possible to profit for short periods of time which is cheaper because you won’t have as much interest, and information is constantly available about this pair online. and in the news.
Basic things to understand while trading these pairs
When a Forex trader decides on an online currency trading system, there are few things to consider. These things are Base and quote currency, trend, signal, momentum… Whichever trading system you choose, these things must be considered otherwise the trader will fail in Forex trading.
– Trend and price movement
The trend is like the strength of Star Wars. Remember the phrase: “May the force be with you?” I take some liberty with this saying, but trend is the direction in which the market is flowing and it is easier to trade with that trend, flow, or “force” than against it. Therefore, from our reduced perspective, we determine what “happened”, in which direction the trend is heading for the current period we are trading.
– Base currency and quote currency
The base currency is the first currency listed in the currency pair and shows its value against the second currency, also known as the quote currency. Therefore, in the example above, EUR is considered the base currency and USD is the quote currency, and 1 USD is equal to 0.8112 euros. Most of the time in the forex market, the US dollar is listed as the base currency, with the euro and pound sterling being a few exceptions. To calculate how many dollars you could buy with 1 Euro, you divide the base currency by the quote currency, so in this example it would be 1 (USD) / 1.2327 (EUR) or 0.8112.
– Bid price, sell price and spreads
Currency quotes are expressed in terms of buying and selling prices. The buy price is the price at which the market will buy a currency pair and the sell price is the price at which the market will sell a pair of currencies. The difference between the two is called a spread. So instead of the currency pair listed only in USD / EUR 1.2327, you will see it listed as EUR / USD 1.2327 / 30. This means you can buy $ 1.2327 for one euro and sell 1 , 2330 dollars for one euro. The spread value in this example is 1.2330-1.2327 = 0.0003.
This briefly describes how currency pairs work. It may seem that the spread can be a disadvantage when trading, but this is offset by Forex brokers who do not charge commissions or other fees.
Once you have mastered the context and the trend, you will be looking for a clear, specific and objective signal. In short, it will be based on mathematics. In other words, you must be able to program your signal in a way that is neither arbitrary nor subjective. There are many well-known trading signals that are, in fact, subjective. The best traders use objective signals that go in the direction of the trend. I personally use RSI to generate these signals.
Do you always trade when you have a signal? No. Not all signals are combined with momentum. If you don’t have momentum in the market when you trade, especially when trading hourly charts and below, and if you are a day trader, which means you don’t like leaving transactions open overnight, then you need momentum. .
– Reading Forex Quotes
Let’s go straight – here’s what a quote looks like for the EUR / USD pair: 1.3396.
you said eh ?! – Well!!! you are on the right track! Decipher the quote above: It takes US $ 13,396 (quote currency) to buy 1 EURO (base currency) Hope you found out why the second currency is called the quote currency – all Forex quotes are provided in the quote currency.