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“Currency pairs are the heartbeat of the forex market. Each pair tells a story of the relationship between two economies, offering insights into global financial dynamics.”
Understanding the nature of an asset is an important part of investing in that asset. If you wish to thrive in the forex market, getting a good grasp on what the traded assets are, how they work, and how they compare or relate to each other, will be an essential part of your trading journey.
So, what are currency pairs, what are the most common types, and how can you trade them? In this article, we have broken down all the burning questions, and answered them, to help you get a better grasp on the nature of the assets that form the foundation of all forex trading activities.
A currency pair, also known as a forex pair, is a quotation of two different currencies, with the value of one currency being quoted against the other. In forex trading, currencies are always traded in pairs, and comparing the value of one currency against the other determines the exchange rate between them. For instance, in the EURUSD pair, the value of the euro is quoted against the US dollar.
The first currency is referred to as the ‘base’ currency and the second one as the ‘quote’ currency. Their exchange rate indicates how much of the quote currency is needed to purchase a unit of the base currency.
For example, in the EURUSD pair, the euro is the base currency, and the US dollar is the quote currency. Let us assume that the exchange rate of EURUSD is 1.2000. This means that 1.20 US dollars are needed to purchase 1 euro, or that 1 euro purchases 1.20 US dollars.
There are 3 main types of currency pairs:
Understanding the unique characteristics of each type is essential in helping you make informed decisions based on your strategies, trading style, and risk tolerance. Let’s explain them one by one.
Major currency pairs are the most traded currency pairs in the forex market, involving the world’s most prominent and stable currencies. These pairs always include the US dollar (USD) as either their base or quote currency. Major pairs make up 75% of all forex trades and are known for their high liquidity and tight spreads.
AUDUSD, USDCAD and NZDUSD are also known as commodity currencies because their economies rely heavily on commodity exports.
Minor currency pairs, also known as crosses, consist of major currencies that do not include the US dollar. They may have lower liquidity and wider spreads compared to majors, but they offer traders enough opportunities, especially when it comes to portfolio diversification.
Exotic currency pairs consist of one major currency paired with a currency from a smaller and emerging economy. They are characterised by lower liquidity and wider spreads compared to major and minor currency pairs. They are also highly volatile due to political and economic instabilities in countries with emerging economies.
Your choice of a currency pair should depend on factors such as your trading strategy, your risk tolerance, your market knowledge, and your trading experience. Specific market conditions will also play a significant role in your decision-making.
Here are some factors to consider:
Beginner traders and those with a lower risk appetite are generally advised to stick to major currency pairs which have higher liquidity and lower volatility. The most popular and most traded pairs also have extensive market analysis available online for those who are just beginning out and need to gather knowledge.
Experienced traders, on the other hand, can consider minor pairs for portfolio diversification, or look for higher profits in exotic pairs with larger price movements, provided the risks are managed well.
You can find an extensive list of the currency pairs you can trade with us on our Forex page. Here, we share details about the spreads, swaps, lots, and limit or stop levels of each currency pair depending on your account type to help you make informed decisions.
Economic indicators, interest rates, market sentiment, and geopolitical events are some of the key factors that influence currency pair movements. Let’s examine them in more detail.
We offer our traders daily updates on market news on our Research Portal. You can stay informed by checking the developments there. Additionally, you can join our daily Live Education sessions, where these topics are regularly discussed, and gather valuable insights from market experts.
When it comes to getting started, especially with something as complex as trading currency pairs, it can be difficult to know where to begin. Here is our step-by-step approach to guide you through the process.
Currency pairs are the heartbeat of the forex market. Each pair tells a story of the relationship between two economies, offering insights into global financial dynamics. Regardless of which one you decide to trade, having a good grasp of that currency pair empowers you to make informed decisions, identify market opportunities, and manage risks effectively. It is also important to make sure the factors involved align with your trading strategies and risk tolerance.
Access a wide range of assets with a global broker by your side. Buy and sell currencies, stocks, indices, commodities and much more on our user-friendly and innovative platforms.
Given that there are over 180 recognised currencies worldwide, the potential pair combinations would exceed 16,000. However, not all currency pairs are actively traded.
This depends on various factors, such as your trading strategy, experience, and risk tolerance. Make sure you are aware of the risks involved and avoid overtrading. It is important to find a balance that suits your trading style.
There is no such thing as a safe currency as the forex market is highly volatile and involves risks. However, some currencies are perceived as safer than others due to being strong and stable in value.
For example, The USD and CHF are perceived as safe currencies due to their respective countries’ economic strength and political stability. The USD benefits from its status as the world’s primary reserve currency, while the CHF is backed by Switzerland’s strong financial system and neutrality.
The strategy you choose to adopt will depend on your trading style, your risk appetite, and the market conditions. For example, if you prefer opening short-term positions and exploiting small price movements, then you can try out different scalping strategies. On the other hand, if you want to hold your positions open for several days, you can look into adopting swing trading strategies.
We offer currency pairs on MT4, MT5 and our native app. You can test our platforms by opening a free demo account and trading your currency pair of choice in a virtual environment until you are ready to trade with real money.
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