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Newbie Guide to Currency Pairs in Forex Trading – Review

Currencies / BlockChain Aug 25, 2019 - 08:37 AM GMT

By: Kavinesh_A

Currencies The coupling of currencies from two countries to exchange or trade against each other is known as currency pairs in forex trading. There are exchange rates from both currencies on which the position basis of the trade are established. Currency pairs are undoubtedly an integral component when you mention forex trading, understanding it’s basics is so vital since every form of buying and selling is achieved through currency pairs.

Understanding Currency Pairs reports that major currencies takes over 75% lead in the marketplace. This is because they are largely independent of government regulation and they are traded outside the jurisdiction of all national and international bodies. On the other hand, trading in the currencies of developing and smaller economies such as Chile or Thailand comes with liquidity limitation, hence these currencies are known as exotic or emerging market in forex trading. They also experience low exchange rates and local restriction which prohibits the development of an effective market and restrains their access.

There is usually a float in the exchange rates of currency pairs, which means there will always be continual changes in exchange rates which occur due to a number of factors. The major factor that affects the exchange rate calculation between foreign currency pairs is known as base currency. For better understanding, here is an example from cryptorocket- A listing pair may surface in this format – GBP/USD 1.3045 which clearly means that the USD is the quote currency while the base currency is GBP. The ratio price is the disparity between the both currencies. The example shows that 1 GBP is traded for 1.3045 USD which translates to the fact that the multiplication of the base currency generates the purchasing power or proportionate value of the foreign currency. 

With the illustration above, a position can be based by a currency trader where the GBP is concurrently long by the trader and the USD is short. With this pairing, profit is made only if the exchange rate of the British Pound experiences an increase. On the other hand, if the GBP/USD currency pair is short by the trader, their speculation will be that  the USD value should rise above the GBP.

Note: Percentage In Point (PIP) movements are the changes in currency exchange rates.

Most Popular Currency Pairs

Even if it’s possible for almost every currency to trade, some currencies pair intermittently than others. The United Dollars is a dominant currency in the marketplace hence every primary currency is paired with it. There are major currency pairs in the forex market and below are some of them:

  • USD/CHF. The US dollar is paired against the Switzerland currency
  • USD/GBP. The US dollar is paired against the British Pound
  • NZD/USD. The New Zealand currency is paired against the US dollar
  • USD/CAD. The US dollar is paired against the Canadian dollar
  • USD/JPY. The US dollar is paired against the Japanese Yen.
  • AUD/USD. The US dollar is paired against the Australian dollar.

By Kavinesh

© 2019 Kavinesh - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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