Do not know where to start Forex trading? Read the article about the major currency pairs in Forex Exchange! Currency is the most traditional trading instrument trusted worldwide. Learn how to read currency exchange rates, find out how to trade currency pairs, what is the best time for trading currencies, and what makes a currency pair liquid.
A currency pair is the quotation of two different currencies. For example, EURUSD. The value of one currency is quoted against the other. The base currency is the first listed (EUR), the quote currency is the second listed (USD). Every currency has a three-letter ISO (International Organization for Standardization) symbol, and it is pretty simple, look: USD - the U.S. dollar, JPY - the Japanese yen, AUD - the Australian dollar, CAD - the Canadian dollar, and GBP, the British pound, stands for the currency of Great Britain.
How to read currency pairs? The quotation EUR/USD = 1.12 means that one euro can be exchanged for 1.12 U.S. dollars. The number reflecting the difference in value is an exchange rate, and in our case, it is equal to 1.12. That means that having 1 euro you can buy 1.12 U.S. dollars.
In theory, either currency can come first and the rate will be shown inverted if the order is reversed, for example, USD/EUR=0.89. However, there are commonly-adopted conventions reflecting traditionally strong currency versus a traditionally weak currency, where the strong currency is coming first.
Currently, there are about 180 legal currencies used in the world. In theory, it is possible to exchange one currency with 179 other different currencies. MTrading offers you 38 most popular currencies to trade. The most traded currency pairs in the world are called the 'majors'. They involve the following currencies: euro (EUR), U.S. dollar (USD), Japanese yen (JPY), pound sterling (GBP) and some more. Some of the major currency pairs are listed below according to their decreasing trading popularity:
The EUR/USD is the world's most popular Forex pair. Currencies in that pair represent the world's two largest economic entities - The European Union and The United States. The U.S. dollar and euro make up a great percentage of trades all over the world.
The USD/JPY is the second world's popular currency pair. The Japanese economy ranks the third-largest in the world by nominal GDP. Moreover, Japan is the fourth-largest purchasing power parity (PPP) and a large international trading hub, so multinational corporations invest in the Japanese economy in great volumes, making JPY a high-demand currency.
The GBP/USD pair's popularity is based on the strength of the British and American economies respectively. When the UK is outperforming the US, the GBP/USD tends to rise. The performance of both countries' financial sector naturally moves the GBP/USD pair.
As for the USD/CHF, Switzerland stays a hub of private banking and investment management. It has a reputation of a safe and prosperous country. The Swiss franc, like the Japanese yen, is commonly used by traders in times of international turmoil.
Smart trading considers major factors affecting the movement of the currency.
Make sure you consider them while trading:
While it is difficult to plan the unexpected in the Forex market, an informed trader uses global events as an indicator of future currency performance.
Let us suppose you have analysed the market and believe the Euro is about to weaken due to some reasons. Also, you think that the USD has good chances to strengthen against the EUR according to the latest economic events. Thus, you are interested in the EURUSD currency pair. To the right of the currency pair, you can usually see the rate represented by bid and ask prices. The bid price is the price a forex trader is willing to sell a currency pair for. Ask price is the price a trader will buy a currency pair at. Both of these prices are given in real-time and are constantly updating.
For example, for the EUR/USD pair, with a bid price 1.12325 and the ask price 1.12337 a trader can sell 1 euro for 1.12325 U.S. dollars, or to buy one euro for 1.12337 U.S. dollars. The difference between the ask and bid price is called the market spread. In this case, the spread is 0.00012. A lower Forex spread allows the trader to reduce his losses. Usually, you sell if you think an exchange rate will go lower, and you buy, if you expect it to rise.
Find out what the average broker's spread is, what currencies are suitable for beginners, and what is the best time to trade a certain currency.
Best trading time: London and New York sessions (06:00 GMT – 17:00 GMT)
Average Forex brokers spread: 0 – 2 pips
Daily trading range average: 90-100 pips
Suitable for beginners. Good for the intraday trading due to its large intraday range.
Best trading time: London and New York sessions (06:00 GMT – 16:00 GMT), and Asian trading session (22:00 GMT – 04:00 GMT)
Average Forex broker spread: 2 - 3 pips
Daily trading range average: 50 - 100 pips
Not for beginners. Trading the USD/JPY is suited for those who practice swing trading and position trading.
Best trading time: London and New York sessions (06:00 GMT – 17:00 GMT)
Average Forex broker spread: 2-3 pips
Daily trading range average: 150-200 pips
Suitable for beginners. Good for the intraday trading due to its large intraday range. Also can be traded by swing and position traders.
Best trading time: London and New York sessions (06:00 GMT – 17:00 GMT)
Average Forex brokers spread: 2-3 pips
Daily trading range average: 50-70 pips
Liquidity is the ability of a currency pair to be traded on demand. The major currency pairs are exceedingly liquid. They are bought and sold in big volumes every day all over the world.
Imagine, you come to the currency exchange intended to buy some dollars. You are unlikely to face any problems since the U.S. dollar is very popular and traded currency all over the world. Whereas if you wish to buy a South African Rand, you may face some challenges. Imagine, there is the only currency exchange ready to sell you the Rand in the amount that you need. This exchange has a unique selling proposition and jacks up the price for Rand twice. Such factors as the absence of the sufficient amount of the currency in the market, the lower demand and artificially raised prices for this currency make the Rand illiquid.
Look at these currency pairs.They are the most liquid on the Forex market: EUR/USD, GBP/USD, AUD/USD, USD/CAD, USD/CHF, USD/JPY.
A good way to start trading any instrument on Forex is to start with what you know. If you have the insight into a particular economy, you may naturally feel inclined to trade its currency - even if that means trading a currency pair that is not one of the majors. Overall, the benefits of currency trading, like tighter spreads, good leverage provided, availability of economic news, and analytical data on hand make the currency a good way to gain some confidence and solid experience.
Stay tuned! Follow the updates in our Education section.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
