There are various views over an absolute number of major currencies, However, many will comprise the traditional ‘four majors’ – EUR/USD, USD/JPY, GBP/USD and USD/CHF – in addition to the three most-traded ‘commodity currencies’ against the US dollar, which are AUD/USD, USD/CAD and NZD/USD.
Basically, Currency pairs contain two currencies, while one is a quotation of the other. Briefly, one currency is matched with another currency. The first currency is usually known as the base currency, and the second one is the quote currency. When you select EUR/USD. The EUR is the base currency, and the USD is the quote currency.
Hence, if the quote for EUR against USD is 1.13, it means that 1 EUR can be changed for 1.13 USD. The rates of every currency are regularly not persistent. They tend to alter all the time. The EUR can grow while the USD devalues or conversely.
When and How to buy or sell currency pairs?
75% of the total forex trades belong to the foremost currency pairs, however, bear in mind that not all currencies have similar liquidity. The liquid ones are much easier to trade than those that are not mainly used because they have the majority of buyers and sellers.
Besides, be aware that any currency without the USD is popular as the cross pair. They might contain; EUR/GBP, EUR/CHF or EUR/JPY.
How Do Forex Currency Pair Work?
Basically, several traders are not aware of the function of major currency pairs, but technically speaking they refer to buying and selling currencies. The Forex market is never inactive since the currencies go on changing and moving, and that is both the base and quote currencies. As a matter of fact, the Euro would lose its strength against the US dollar or become strong against the USD. This allows traders to sell or buy to gain profits regarding the lots they are buying.
As an illustration, suppose the quote for EUR against the USD is 1.3560, it means that to buy one unit of the EUR, you must pay 1.3560 USD. When you intend to sell, you will obtain 1.3560 US dollars.
At this time, traders might be interested to buy the EUR/USD pair in case they are in the opinion that the EUR will increase its value against the US dollar, which is also popular as going long. The trader can also sell the EUR/USD pair (going short) if he has confidence in that Euro will devalue.
The most popular Forex Major Currency Pairs
In this financial market which is international seven main currency pairs are traded totally, and all of them have their own nicknames. Traders pick them referring to their trades in the forex market. However, as a whole, four currency pairs are on no occasion omitted. The reason is that they are traded in enormous volumes and characterize the world’s leading economies. They are as follows:
EUR/USD: The Euro and US dollar
The EUR/USD currency pair has a positive association with the GBP/USD and a negative correspondence with the USD/CHF. The euro, the British pound, and the Swiss franc all have a positive correlation.
USD/JPY: The US dollar and Japanese Yen
The USD/JPY has mostly been the second traded pair used. The conflicts between the United States and the Far East have been a cause of worries for this pair. Because the US dollar is the base currency in all three pairings, the pair basically is sympathetically connected with USD/CHF and USD/CAD.
GBP/USD: The British pound sterling and US dollar
The GBP/USD pair has a positive association with the EUR/USD and a negative correlation with the USD/CHF. The main reason is that the British pound, Swiss franc, and euro all have a positive correlation.
USD/CHF: The US dollar and Swiss Franc
USD / CHF is the currency pair consist of US dollars and Swiss francs. The currency pair displays how many Swiss francs it takes to buy one US dollar (the base currency). Trading the USD / CHF currency pair is recognized as “Swissie” trading.
AUD/CAD: The Australian dollar and Canadian dollar
The AUD / USD currency pair are technically having a negative association with the USD / CAD, USD / CHF, and USD / JPY pairs, as the US dollar is the quoted currency in these cases. The correlation with USD / CAD is because of that both the Canadian and Australian dollars have a positive correlation with each other, as they are both commodity block currencies.
NZD/USD: The New Zealand dollar and US dollar
NZD / USD. The value of the NZD / USD pair is considered as 1 NZ dollar for every X US dollar. For instance, if the pair is trading at 1.50, it means that $ 1.50 is necessary to buy NZ $ 1.
USD/CAD: The US dollar and Canadian dollar
Because the US dollar is the quote currency in these other pairs, the USD/CAD currency pair has a negative correlation with the AUD/USD, GBP/USD, and EUR/USD currency pairs.
What impacts Forex Currency Pairs?
The following factors would have impact on the main currency pairs, that’s why the traders have to get on the market track to make the best choice.
Obviously, the forex traders are seeking for higher earnings all the time, and consequently, financial stability plays very vital role in this respect. They always have to scrutinize whether interest rates are rising in the central banks.
Another significant factor is associated with Economic data, and traders are required to pursue these data to be updated with the country’s economic performances. Economic data can be related to inflation, employment data, GDP, etc.
Important elections in the major countries, corruption, trade wars mainly have significant effect on instability, which consequently influences the forex market tremendously. Politics is a giant factor in forex trading since the governments can have impact on the economy, which may lead to rise or fall of values in currencies.
Hints to Trade with Major Currency Pairs
If you are a brand new trader, select liquid currency pairs until you get familiar that how the pairs move. Besides, pick the best trading time, leverage, and follow the news to realize how the currencies are operated.
In case of trading with major currency pairs, we make suggestion to:
Develop your trading capabilities and skills.
Define your purposes and trading style.
Decide on a good Trading Platform and a good Broker
Decide the points of entry and exit and follow them.
Select a Methodology That Is Constant and stick to it.
All the time take Small Losses and make sure to realize why you lost.
Figure out Your Probability and have reasonable risk management
Initiate a weekend analysis and get ready for your week.
Keep a Paper Record and Journal
What Are the Forex Major Currency Pairs with The Most Pips?
A pip is the last decimal place to which a certain currency rate is generally quoted. In standard market circumstances, numerous online forex providers frequently quote no more than a set 1-point spread between the bid and offer on major currency pairs and liquid cross rates.
Currency traders commonly care about currency pairs with the highest pip values, as they are principally in effect for short-term techniques like day trading. Each pip’s value is identified by your lot size and the currency you’re dealing. Pips can also be applied to calculate how much leverage a trader is able to engage when trading foreign currencies.
What Are the Benefits of Trading Major Currency Pairs?
Since there are huge number of buyers and sellers attempt to make a trade at any certain time, Forex is the most liquid market in the world. people, organizations, and institutions deal nearly $6 trillion dollars of cash every day, approximately double the yearly British gross domestic product (GDP).
Due to forex’s great liquidity, transactions may be executed swiftly and professionally, and spreads are often quite tight, implying that the underlying market price does not need to move tremendously in order for your trade to be lucrative.
Major traditional currencies
Each of the four traditional main currencies is mentioned below, together with the factors that influence their price changes. It’s essential to mention that the most popular currency pairs by trading volume aren’t essentially categorized as majors. The four majors, on the other hand, are the market’s most conventionally popular currency pairs. For instance, the AUD/USD currency pair is at present the fourth most traded in the world, on the other hand, it isn’t considering as one of the four traditional majors.
The euro and US dollar: EUR/USD
The US dollar and Japanese yen: USD/JPY
The British pound sterling and US dollar: GBP/USD
The US dollar and Swiss franc: USD/CHF
The term “cross currency pairs” refers to currency pairs that do not contain the US dollar. These pairs aren’t encompassed in some traders’ pools of major currencies. Traditionally, a person who craved to exchange a sum of money into a different currency would be needed first to convert that money into U.S dollars and then convert it into the preferred currency. Cross currency transactions could be performed under this system, but they sometimes still went through a U.S. dollar calculation to confirm rational settlement. Even though the U.S. dollar works as the world reserve currency, the upsurge of the forex market has made cross currency transactions and cross currency pairs common. The GBP/JPY cross, for instance, was conceived to help individuals in England and Japan who needed to convert their money directly without having to first convert it into U.S dollars.
Cross Currency Pairs in Forex Trading
Cross currency pairs can be tremendous tools for forex traders. Some cross currency trades can be arranged to position traders on specific international happenings. The same trade would be more sophisticated and capital intensive setting up separate positions with the USD/GBP and USD/EUR, but this method is still used to create unusual cross currency pairs that are not broadly traded. Common cross currency rates encompass the Japanese yen. Many traders take benefit from the carry trade where they own a large financial return currency like the Australian dollar or the New Zealand dollar and short the Japanese yen – the low yielding currency.
Pros of Cross Currency Pairs
Since the end of the gold standard and the increase of global trading at a wholesale level, cross currency transactions are part of daily financial trading. cross currency transactions both make it easier for international payments, and have made them distinctly low-priced. Because an individual does not have to swap the currency into U.S. dollars first, there is only one transaction, meaning only one spread is crossed. Moreover, as non-USD pairs are now more generally traded, the spreads have constricted to make it even cheaper to move from one currency to another.
content source : ITB Broker website