Currency Pairs Explained for Beginners

‘Day traders’ buy and sell currencies over the course of a single day, closely monitoring market movements. A currency pair quotes one currency against another one, like the EUR/USD pair, where the EUR is the base currency, and the USD is the quote currency. The given pair, USD/ EUR represent the US Dollars (USD) compared to the Euros (EUR). A currency pair has 2 components- base currency and quote currency. Currency trading platforms are software systems that allow traders to participate in trading online currency.

If you are trading EUR/USD, for example, you are exchanging euros for US dollars. ‘Buy-and-hold’ traders prefer to make long term predictions about the relative strength of currencies, and may hold currency pairs over a number of years. Major currency pairs are the most actively traded currencies.

The exchange rate, or price, represents how much one currency is worth compared to the other. If the EUR/USD is trading at a price of 1.1015, that means that one euro is worth $1.1015. While much forex trading happens within the space of a single trading day, it’s possible to hold a currency pair for days, weeks, months, or even years.

Send Money Abroad in

The difference between the bid and ask price is called a spread indicated by pips. People exchange currencies for various reasons including speculation, tourism, international business, and hedge fund risk. When trading currency pairs, a person simultaneously sells one currency to buy another. For example, we are looking to find value by utilizing technical & fundamental analysis, and it takes a fair amount of discipline to make a profit. The size of two economies will often be reflected in the trading volume of their currency pairs, hence, why EURUSD dominates the market. Most of the day-to-day trading activity in currencies will be carried out by participants in the “real” economy, who exchange currencies to help them carry out their business activities.

The difference between the bid and ask price is known as the spread. The base currency is always written on the left of the pair, and is always equal to one unit, such as £1 or $1. First, we provide paid placements to advertisers to present their offers. The payments we receive for those placements affects how and where advertisers’ offers appear on the site.

If a EUR/USD position is closed out with a profit in USD by a British bank, then the rate-to-base will be expressed as a GBP/USD rate.
These factors can be influenced by fundamental factors, including monetary policy and economic and political developments.
However, this currency pair is heavily influenced by risk sentiment and can, therefore, be prone to quick, large movements.
The base currency, equal to one unit, is multiplied to yield an equivalent value or purchasing power of the foreign currency.

By selling a currency pair, also known as going short or taking a short position, you are banking on the base currency weakening against the quote currency. If you were right and the price falls, you can buy the pair for a profit. The two currencies involved in this exchange are grouped into a currency pair.

The Yen (USD/JPY)

Buying a forex currency pair is pretty much like buying a stock. When purchasing stock, a person exchanges a currency, such as the U.S Dollar, for either a share of a business or a commodity. When buying a currency pair, they buy one currency in exchange for another one. Unlike stock exchanges, the foreign exchange market is open 24 hours a day, five days a week.

These forex pairs are ranked as such due to the high trading volumes seen in each market, as well as for historical reasons. For example, the Swiss franc is widely bought as a safe-haven asset. Unsurprisingly, as the US economy is the largest economy in the world, all of the major currency pairs include USD. The most traded currency pairs are called the majors or simply major currency pairs.

Major Currency Pair

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When converting currencies, it’s important to know the cut off times of different currencies. As long as you create your conversion before the cut off time, the conversions will settle on the same day. Currencycloud’s FX schedules have all you need to know to make your conversion on time.

Understanding Liquidity in the Forex Market

This site does not include all companies or products available within the market. Each Forex transaction consists of exchanging one currency for another. The International Organization for Standardization (ISO) currency code identifies each currency, such as EUR for the Euro and USD for the US Dollar. When it comes to trading foreign currency, it is unquestionably quebex essential to ensure that you have identified the most successful tactics overall. Forex trading is an exciting market that offers tradable currencies the chance to react to changes quickly through a Forex trading platform. In today’s era, Hedge funds are one of the most well-known investment vehicles.

The EUR is the base currency, and the USD is the quote currency. The first three letter code used to describe a currency in a currency pair is always the base currency. Currency pairs show the amount of quote currency needed to buy one unit of the base currency. It is hypothetically possible to trade USDEUR, rather than EURUSD. In both instances you would trade the euro vs the dollar, but the base and quote currencies will be reversed. For largely historical reasons, most of the trading activity in pairs of currencies will be done in one form of the ticker, in this case, EURUSD.

The Cable also has a high trading volume, with the pair accounting for approximately 8% of total forex trading.
The majors are the most popular, which also means they tend to be more liquid than the others.
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Different traders have varying opinions about the line between minor currency pairs and exotics, but there are some minor currency pairs widely accepted as the latter.
Currency manipulation, social unrest, and political problems are all issues that can arise unexpectedly.
Currency pairs are instantly recognizable by the three-letter currency codes established by the ISO standard committees in 1978.

The rates are almost universally derived, however, by taking the first currency’s rate against the USD and multiplying/dividing by the second currency’s rate against the USD. Visit the eToro Academy to learn more about currency pairs and forex trading. There are as many currency pairs as there are currencies in the world. The total number of currency pairs that exist changes as currencies come and go. All currency pairs are categorized according to the volume that is traded on a daily basis for a pair.

How to Stay Focused and Disciplined in Forex Trading?

A currency trader may establish a position where they are simultaneously long the euro and short the dollar. For traders to make a profit, the euro exchange rate must increase. Alternatively, when a forex trader shorts the EUR/USD currency pair, they speculate that the value of the U.S. dollar will rise above the euro. Although trading major currency pairs is generally less risky than trading other types of pairs, you can still lose money just as easily if you forex strategies free don’t know what you’re doing. The key to trading any currency pair successfully is to meticulously study its movements and the reasons behind them.

The exotic currency pairs include currencies of the emerging markets. These are not as liquid as the major or minor currencies, and their spreads are much wider. Like the major currencies, quantitative trading the exotic pairs have a base and a quote currency.

On the other hand, a “sell” trade would result in a short position in GBP and a long position in USD. This floating rate means that the exchange rate continually changes. The currency pairs set the value of one vs. another, and the exchange rates continuously fluctuate based on the respective changing values.