Once you have been registered in a brokerage company, first what you would be offered to do to choose among several types of assets, with which one would work, for example:
- currency pairs
- shares
- indexes
- crypto currencies
A beginner starts very often his or her trading from currency pairs. This is one’s first steps towards Forex trading, because in order to trade shares or indexes one should clearly see the core of market stock, to perceive the trading sessions (shares are not traded day-and-night in comparison with currency pairs), to be a pretty good judge in quarterly reports of those companies, whose these shares are.
So, closer to currency pairs, because it's one already have understood, the currency is traded in pairs. One is bought with another in order to sell it a bit later and get the profit by way of rate rise of the target pair.
A currency pair consists of a basic one, or a base and the second - a quote currency, or the counter.
The manner, how a pair is seen, is marked out by International Organization of Standardization, or simply ISO. So, ISO dictates if the pair is EUR/USD and not USD/ EUR.
Taking into consideration, that first indicator is the main currency, and the second - the minor, by an example of the EUR/USD pair one can buy €1 per $1.29 and the second variant, when US dollar is at the first place, for example USD/JPY, where a pair means, how many Japanese yen one should give for $1.
But one should not forget about the fact that trading presupposes two price variants, one for a seller (bid), another for buyer (ask), just as at an orderly currency exchange. The difference among these two values is called the spread.
All currency pairs are splitted into 3 types:
- Main pairs or Major pairs
- Cross pairs or Minor pairs
- Exotic pair or simply Exotics
The bulk of currency trading occupy the major pairs, such as:
EUR/USD - Euro/US dollar
USD/JPY - US dollar/Japanese yen
GBP/USD - British pound/US dollar
USD/CHF - US dollar/Swiss franc
USD/CAD - US dollar/Canadian dollar
AUD/USD - Australian dollar/US dollar
NZD/USD - New Zealand dollar/US dollar
These foreign currencies are the most frequently traded ones all over the world as they are relating to world’s largest economies, such as: USA, Japan, Switzerland, Britain, Canada. Besides this, one of the most significant characteristic of the main pairs are their liquidity, in other words, they are mostly traded all over the world and they also own the lowest spreads, during the trading by means of these pairs.
As you have already noticed, each pair consists of US dollar on one side, as the world’s leading currency. It is involved into more than 80 percent of currency trades. But as the most popular pair, for example, EUR/USD it, it doesn’t mean the most simple one. Too many news can have impact on it. Thus, it became necessary to form a separate group, category of pairs, where US dollar is absent.
Cross currency pairs, or they are called also minor ones, have no US dollar inside a pair, for example:
EUR/GBP — Euro/British pound
EUR/AUD — Euro/Australian dollar
GBP/JPY — British pound/Japanese yen
CHF/JPY — Swiss franc/Japanese yen
NZD/JPY — New Zealand dollar/Japanese yen
GBP/CAD — British pound/Canadian dollar
The most popular pair here are those with yen, euro and pound. No matter what currency here you are trading, first they are changing into dollars and then into a desired direction.
Exotic currency pairs include a major one and the currency of emerging stock markets, or small countries, where the euro is not used at all, for example emerging countries from Asia, Middle East, Africa, South America and others.
EUR/TRY - Euro/Turkish lira
USD/SEK - US dollar/Swedish krona
USD/NOK - US dollar/Norwegian kroner
USD/DKK - US dollar/Danish krone
USD/ZAR - US dollar/South Africa rand
USD/HKD - US dollar/Hong Kong dollar
USD/SGD - US dollar/Singapore dollar
NZD/SGD - New Zealand dollar/Singapore dollar
AUD/MXN - Australian dollar/Mexican peso
GBP/ZAR - British pound/South African rand
They are traded not so often as minor and major ones, but here you will find the low liquidity and the high spreads. The pairs for real risk-takers.
What does influence a currency pair?
The exchange rate of any currency pair differ at any given time depending on various factors, such as: interest rates movements, monetary policy, economic crisis, political events, public information, currency historical facts, news, companies’ reports, inflation, trade balance (demand, supply, import, export), price index, employment data, housing data, market sentiment, speculation (but what would a stock market do without it), country’s debt, stability or chaos in other countries, some kind of disasters and may be others, if you want to add, please don’t hesitate!
So, as you see, there are too many factors, that have an impact on the currency movements, that’s why don’t try to embrace too many pairs at once, study one or two first to become acquainted with their peculiarities to know precisely how they are behaving on a row of events to feel, how it should be traded with a good outcome.
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