The following is a guest post. Enjoy!
One of the first things to learn about when you’re getting started with forex is the currency pair. When you begin trading foreign currencies, you’ll see these constantly every day, and they’re important, so you have to understand them properly.
In short, the currency pair is a way of showing the prices of one currency against another in the forex market. With live forex trading, these prices are in constant fluctuation. They are displayed like this: GBP/USD 1.5900, which would mean that 1 GBP is worth 1.5900 USD. GBP refers to the British pound, and the USD is the United States Dollar. The second currency in the pair is called the counter or quote currency; this is the one being referred to. The second one is known as the base currency.
There is an order by which the base currency is usually used; any pair that contains the Euro (EUR) will use it as the base, and then this continues in an order that goes: GBP, AUD, USD, CAD, CHF, JPY and so on. The base currency is usually the domestic currency, for ease of accounting, and the order of precedence is derived from the traditional values of the currencies in respect to one another.
The pairs that are traded most often are known as the majors, and they all include the USD. They are as follows: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, and USD/CAD. 85% of all forex trades involve the major pairs, and 27% alone is accounted for by EUR/USD alone. Other pairs, such as GBP/JPY are known as crosses, and are not traded nearly as frequently. Newer traders are encouraged to begin with the majors, which are far more liquid. There are many other minor currencies that are quite rarely used. If you’d like some more information, a provider called Alpari have actually covered this topic more in depth in a fairly comprehensive video. You can find out more about the two categories of forex pairs below:
When it comes to looking at forex research and news, professionals will often refer to pairs by nicknames, so it’s always useful to know what these are. There are many different ones, but the main pairs are the Cable (GBP/USD), Fiber (EUR/USD), Chunnel (EUR/GBP), the Funds (USD/CAD), Matie (AUD/USD), Geppie (GBP/JPY) and Kiwi (NZD/USD). If you come across a strange term that sounds like it might be a currency, it probably is.
Once you’re familiar with how pairs work, and understand how they are presented, you can begin to learn about the strategy behind making a profit on the forex market.
How about you all? Have you ever done any forex trading? If so, which currencies did you tend to trade the most?
Share your experiences by commenting below!