If you are looking to invest in the forex market, it is crucial not only to understand how to trade but also to have knowledge about forex currency pairs. We believe that many beginner investors are still wondering what currency pairs are and why they matter in the forex market. Hence, to help you invest with confidence and increase your investment returns, we have compiled useful information about currency pairs in this article.
What Is a Currency?
A currency is a standardized form of money that is used or circulated as a medium of exchange. There are 7 major currencies traded in the forex market:
1) USD = US Dollars
2) EUR = Euro
3) GBP = Great Britain Pound
4) JPY = Japanese Yen
5) CAD = Canadian Dollars
6) CHF = SwissFranc = Schweizer Franken
7) AUD = Australian Dollars
What Are Currency Pairs?
Currency pairs are the national currencies of two countries linked for trading on the foreign exchange market. Thus, currency trading is always conducted in pairs. This is why they are called currency pairs.
Importance of Currency Pairs
Understanding the importance of currency pairs is crucial for grasping the details of forex trading. In the forex market, currency pairs are the core of an investor's investments, making them of great significance. The currency pair you choose to trade can determine whether you make a profit or incur a loss, highlighting the importance of comprehending currency pairs for any forex trader. Investors are interested in currency pairs because they can forecast their strengths in the future, using this information to determine potential profits or losses. However, selecting a currency pair requires careful consideration of financial analysis.
Major and Minor Currency Pairs
There are two types of currency pairs traded in the forex market. The majors are the main currency pairs used by forex investors. Minor currency pairs are currency pairs that are used occasionally but are not as popular. However, most traders choose to trade major currency pairs and buy minor currency pairs for speculation in order to diversify their investment risks.
Most Traded Currency Pairs
1. EUR/CHF
Switzerland's primary trading partner is a nation within the Eurozone. The Swiss franc's interest rate is relatively low, making it compatible with the carry trade operating system. This currency pair has exhibited a positive trend in the movement since 2006.
2. EUR/JPY
This currency pair is widely traded in relation to USD/JPY and EUR/USD. Investors tend to keep a close eye on the fluctuations of this currency pair, paying particular attention to the interest rate as well as the difference in growth rates between Japan and the Eurozone countries.
3. NZD/JPY
This currency pair is most preferred in carry trades as it has the widest interest rate spreads. This currency pair is great for opening long positions, especially if it has powerful fundamental and technical indicators.
4. EUR/GBP
The UK and the Eurozone are the second most important trading partners. If an investor mainly considers the fundamentals related to the UK and the pound, then the trader must definitely choose to invest in this currency pair.
5. CAD/JPY
Based on this currency pair, traders can predict the trend of oil prices. Canada has the second-largest oil storage in the world. It is the world's largest oil exporter and thus benefits from rising oil prices. On the other hand, Japan, an oil-importing country, will face losses. Therefore, if you want to make a profit by opening a long position on this currency pair, it is best to do it during the oil price surge.
Conclusion
In conclusion, this entire article focuses on currency pairs, including the most common pairs that are essential knowledge for beginning traders. Despite knowing which currency pairs to trade, traders should always gain more knowledge about the forex market, trading strategies, and trading news to optimize their trading.
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Updated
6 months ago
(Apr 24, 2023 17:29)
