Before entering into the diverse landscape of forex, you have to learn a lot of things to execute successful trades. One of which is to realise that not all currency pairs are created equal, and there are only a few forex pairs that form the backbone of the foreign exchange market.
In this article, we will discuss currency pairs and their types. By understanding these, you can make informed decisions and set yourself on the path to becoming a successful trader.
Understanding Currency Pairs
The foreign exchange (forex) trading market is the place where traders from all over the world buy, sell, and exchange different currencies. It is the best market for making big investments and executing international trades without any hassle. But before executing a trade, you must have a deep understanding of what is forex and how different currency pairs are traded in the market.
All the forex trades involve the simultaneous buying of one currency and selling of another, but when it comes to currency pairs, they are considered as a single unit, which you can buy or sell according to your needs and preferences.
Moreover, you should also understand that currencies on the foreign exchange market have a bid and ask price, where the bid price is the amount the broker is willing to pay you for a currency, and the ask price is the cost at which they sell a currency. For example, if the EUR/USD bid is 2.1202 and the ask is 2.1202, this means it costs 2 pips to buy and sell this pair.
Major Currency Pairs
The major currency pairs are the most widely traded and liquid among all currency pairs. The USD is the primary component in these pairs, and everyone knows that this is the world’s primary reserve currency, involved in almost 90% of foreign exchange transactions.
The major forex currency pairs include
- EUR/USD
- USD/JPY
- GBP/USD
- USD/CHF
- NZD/USD
- USD/CAD
- AUD/USD
Minor and Exotic Pairs
Minor and exotic pairs involve currencies that are not among the most frequently traded major pairs in the market. The minor pairs are cross-currency pairs in which each currency holds nearly the same value, but neither of them is USD. For example, EUR/GBP, AUD/CAD, GBP/JPY, NZD/JPY, and EUR/CHF. All of these pairs are less liquid and have wider spreads as compared to the major pairs.
On the other hand, the exotic pair is formed by combining a major currency, such as the USD, with a currency from a developing or emerging economy. For example, USD/ZAR, EUR/HUF, and USD/HKD.
However, if you are going to trade a currency pair for the first time and are feeling overwhelmed, consider seeking help from professional services providers, such as TMGM. You can learn some effective strategies from them to execute successful trades. Moreover, they also offer a platform where you can make trades and start your trading journey.
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