Forex & currencies trading: Currency Pair

all trading of currencies on the forex takes place

Forex & currencies trading: Currency Pair

What Is a Currency Pair?

Understanding Currency Pairs

Major Currency Pairs

Minors and Exotic Pairs

What Is a Currency Pair?

A currency pair is the quote of two different currencies, where one currency is quoted against the other. The first currency listed in the currency pair is called the base currency, and the second currency is called the quote currency.

Read Also: A measure of currency strength

Currency pairs compare the value of one currency to another - the base currency (or the first currency) against the second or the quote currency. It indicates the amount of quote currency required to purchase one unit of the base currency.

Currencies are identified by the ISO currency symbol or three-letter alphabetical code associated with it in the international market. Therefore, for the US dollar, the ISO symbol would be USD.

• A currency pair is a price quote for the exchange rate of two different currencies traded in the foreign exchange market.

• When placing an order for a currency pair, the first listed currency of the listed base currency is bought while the second listed currency or the quote currency is sold.

•  EUR/USD is the most fluid money pair on the planet. The USD/JPY is the second most mainstream cash pair on the planet

Understanding currency pairs

Money sets are exchanged in the unfamiliar trade market, otherwise called the Forex market. It is the biggest and most fluid market in the monetary world. This market permits the buying, selling, exchange, and speculation of currencies.

It likewise empowers cash change for worldwide exchange and speculation. The forex market is open 24 hours a day, five days a week (excluding holidays), and sees huge trading volume

All forex exchanging includes the synchronous acquisition of one cash and the offer of another, however, a similar money pair can be considered as a solitary unit - an instrument being bought or sold.

When you buy a currency pair from a Forex broker, you buy the base currency and sell the quote currency. On the other hand, when you sell the cash pair, you sell the base money and get the statement money.

Currency pairs are quoted based on the bid (buy) and ask (sell) rates. The bid price is the price at which the forex broker will buy the base currency from you in exchange for the quote or quote currency. Ask - also called bid - is the price at which the broker will sell you the base currency in exchange for the quote or counter currency.

When trading currencies, you are selling one currency to buy another. Conversely, when trading commodities or stocks, you are using cash to buy a unit of that commodity or a number of shares in a particular stock. Economic data related to currency pairs, such as interest rates, economic growth, or Gross Domestic Product (GDP), affect the prices of the trading pair.

Major currency pairs

The widely traded currency pair is the Euro versus the US Dollar or it appears as EUR / USD. In fact, it is the most liquid currency pair in the world because it is the most traded.1 The quote EUR / USD = 1.2500 means that 1 EUR is exchanged for 1.2500 USD.

In this case, the euro is the base currency and the dollar is the quote currency (the counter currency). This means that 1 EUR can be exchanged for 1.25 USD. Another way to look at this is that it will cost you 125 dollars to buy 100 euros.

There are as many currency pairs as there are in the world. The total number of currency pairs present changes as the currencies come and go. All currency pairs are categorized according to the volume they trade on a daily basis for the pair.

The currencies that trade the most against the US dollar are referred to as the major currencies, which include:

• EUR / USD or the euro against the US dollar

• USD / JPY, or the dollar against the Japanese yen

• The British pound / US dollar or the British pound against the dollar

• USD / CHF or the Swiss franc against the dollar

• AUD / USD or Australian dollar against the US dollar

• USD / CAD or the Canadian dollar against the US dollar

The last two currency pairs are known as commodity currencies because both Canada and Australia are commodity-rich and both countries are affected by their prices. Major currency pairs tend to have the most liquid markets and trade 24 hours a day from Monday to Thursday.

Currency markets open on Sunday evening when Australia and Asia open their doors the week and close on Friday at 5 pm. United States Eastern Time.

Minor and exotic couples

Currency pairs that are not pegged to the US dollar are referred to as quad currencies or pairs. These pairs have slightly wider spreads and are not as liquid as the majors, but nonetheless are liquid enough. 

The cross currencies that trade with the largest volume of trade are among the currency pairs in which the individual currencies are also a major currency. Some examples of crosses include EUR / GBP, GBP / JPY, and EUR / CHF.

Exotic currency pairs include emerging market currencies. These pairs are not liquid, and the spreads are much wider. An example of a rare currency pair is USD / SGD (US Dollar / Singapore Dollar).