Introduction To Major Currency Pairs

Discussion in 'Education, Tutorials & Courses' started by Sandra S., Oct 24, 2015.

  1. Sandra S.

    Sandra S. Forum Member

    Sep 1, 2015
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    Currency pairs The currencies are always traded in pairs. For example, EUR/USD, which means Euro over US dollars, would be a typical pair. In this case, the Euro, being the first currency can be called the
    base currency.

    The second currency, by default USD, is called the counter or quote currency. As mentioned, the first currency is the base, therefore in a pair you can refer the amount of that currency as being the amount required to purchase one unit of the second currency. So, if you want to buy the currency pair, you have to buy the EURO and sell the USD simultaneously. On the other hand, if you are looking forward to sell the currency pair, you have to sell the EURO and buy the USD.

    The most important thing to understand in a currency pair, or more precisely in a Forex transaction, is that you will be selling or buying the same currency.

    Major currencies

    US Dollar
    – The United States dollar is the world’s main currency – a universal measure to evaluate any other currency traded on Forex. All currencies are generally quoted in US dollar terms. Under conditions of international economic and political unrest, the US dollar is the main safe-haven currency, which was proven particularly well during the Southeast Asian crisis of 1997-1998. As it was indicated, the US dollar became the leading currency toward the end of the Second World War along the Bretton Woods Accord, as the other currencies were virtually pegged against it. The introduction of the Euro in 1999 reduced the dollar’s importance only marginally. The other major currencies traded against the US dollar are the Euro, Japanese Yen, British Pound and the Swiss Franc.

    Euro – The Euro was designed to become the premier currency in trading by simply being quoted in American terms. Like the US dollar, the Euro has a strong international presence stemming from members of the European Monetary Union. The currency remains plagued by unequal growth, high unemployment, and government resistance to structural changes. The pair was also weighed in 1999 and 2000 by outflows from foreign investors, particularly Japanese, who were forced to liquidate their losing investments in euro-denominated assets. Moreover, European money managers rebalanced their portfolios and reduced their Euro exposure as their needs for hedging currency risk in Europe declined.

    Japanese Yen
    – The Japanese Yen is the third most traded currency in the world; it has a much smaller international presence than the US dollar or the Euro. The Yen is very liquid around the world, practically around the clock. The natural demand to trade the Yen concentrated mostly among the Japanese keiretsu, the economic and financial conglomerates. The Yen is much more sensitive to the fortunes of the Nikkei index, the Japanese stock market, and the real estate market.

    British Pound
    – Until the end of the World War II, the Pound was the currency of reference. The currency is heavily traded against the Euro and the US dollar, but has a spotty presence against the other currencies. Prior to the introduction of the Euro, both the Pound benefited from any doubts about the currency convergence. After the introduction of the Euro, Bank of England is attempting to bring the high U.K. rates closer to the lower rates in the Euro zone. The Pound could join the Euro in the early 2000’s, provided that the U.K. referendum is positive.

    Swiss Franc
    – The Swiss Franc is the only currency of a major European country that belongs neither to the European Monetary Union nor the G-7 countries. Although the Swiss economy is relatively small, the Swiss Franc is one of the four major currencies, closely resembling the strength and quality of the Swiss economy and finance. Switzerland had a very close economic relationship with Germany, and thus to the Euro zone. Therefore, in terms of political uncertainty in the East, the Swiss Franc is favored generally over the Euro. Typically, it is believed that the Swiss Franc is a stable currency. Actually, from a foreign exchange point of view, the Swiss Franc closely resembles the patterns of the Euro, but lacks its liquidity. As the demand for it exceeds supply, the Swiss Franc can be more volatile than the Euro. The Canadian Dollar and the Australian Dollar are also part of the currencies traded on the Forex market but do not count as being part of the major currencies due to their insufficient volume and circulation. They can only be traded against the US Dollar.

    Canadian Dollar
    - Canada decided to use the dollar instead of a Pound Sterling system because of the ubiquity of Spanish dollars in North America in the 18th century and early 19th century and because of the standardization of the American dollar. The Province of Canada declared that all accounts would be kept in dollars as of January 1, 1858, and ordered the issue of the first official Canadian dollars in the same year. The colonies that would come together in Canadian Confederation progressively adopted a decimal system over the next few years.

    Australian Dollar - The Australian Dollar was introduced in February 14, 1966, not only replacing the Australian Pound but also introducing a decimal system. Following the introduction of the Australian Dollar in 1966, the value of the national currency continued to be managed in accord with the Bretton Woods gold standard as it had been since 1954. Essentially the value of the Australian Dollar was managed with reference to gold, although in practice the US dollar was used. In 1983, the Australian government «floated» the Australian dollar, meaning that it no longer managed its value by reference to the US dollar or any other foreign currency. Today the value of the Australian Dollar is managed with almost exclusive reference to domestic measures of value such as the CPI (Consumer Price Index).
  2. apple

    apple Active Member Trader

    Jan 4, 2016
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  3. davidson333

    davidson333 Active Member Trader

    Mar 21, 2016
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    Great post. very informative and helpful for new traders. thanks for sharing.
  4. GOSHI

    GOSHI Active Member Trader

    Mar 15, 2016
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    Good one, these all are the popular currency pairs available for trading and are mostly offered by almost every broker. Trading these pairs are relatively easier than trading the exotic or less popular pairs which are also offered by some brokers but these pairs are associated with high risks.
  5. Sarfraz Ahmed

    Sarfraz Ahmed Well-Known Member Trader

    Jul 16, 2016
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    In forex, it is all about currency trading as pairs, which one must know clearly to trade it! The broker I am trading with FreshForex provides the forex education & market analytics! There are about 50 currency pairs to choose and there are Binary Options, Gold, Oil and Stock trading too! So, you have good options across diverse financial markets and with excellent trading conditions like near zero spreads and no re-quotes.
  6. UFStrader

    UFStrader New Member Trader

    Jul 12, 2017
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    • EUR/USD - well obvius, there is not a single trader who does not trade this currency pair
    • GBP/USD - pretty similar pair to EUR/USD however it is quicker, and the moves are about 50% bigger, 150 PIPs daily is not uncommon for this pair.
    • USD/JPY - quite predictible lately, notice that most of the time USD/JPY is bullish it moves slowly up, when there is a correction on this pair, it moves few hundreds pips down in just few days.
    • EUR/JPY - pretty much the same as USD/JPY but moves are less predictible
    • AUD/USD - good alternative where you have no idea where EUR/USD will go, however moves on this pair are smaller then on EUR/USD
    • USD/CAD - pretty predictible, mainly because CAD is highly correlated with oil price, and you know what oil price chart looks like right?
    • USD/CHF - very strong correlation between this pair and EUR/USD
    • EUR/CHF - the same as USD/JPY slowly moves up and then quickly falls down

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