In Forex trading, one currency is bought and another is sold at the same time.
Currencies are traded in pairs through a broker or intermediary. Currencies are quoted against other currencies .
For example, the Euro and the US Dollar (EUR / USD) or the British Pound and the Japanese Yen (GBP / JPY).
When you trade in the Forex market, trades are made in pairs.
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Imagine that each pair of currencies is constantly in a “rope-pulling” match, with each currency on either side of the rope-pulling match.
The conversion rate is the price ratio of two currencies of two different countries.
Currency exchange rates fluctuate depending on which currency is stronger at that moment.
There are three categories of currency pairs:
- Major currency pairs
- Cross currency pairs
- Exotic currency pairs
The US dollar is always present in major currency pairs.
Cross currency pairs do not include US dollars. Crosses that have one of the major currencies in them are also known as ” minors “.
Exotic currency pairs consist of one major currency and one currency from emerging markets (such as Brazil, Mexico, Chile, Turkey or Hungary).
Forex currency pairs:
In the previous lesson, you learned about major currencies. The major currency pairs are a combination of the US dollar and one of the other major currencies.
The currency pairs listed below are considered ” original “.
These currency pairs all have US dollars (USD) on one side and most trades are made on them.
Compared to crosses and exotics , prices move more with the major currency pairs and provide more trading opportunities.
Major currency pairs have the highest liquidity flows in the world.
Cash flow is used to describe the level of activity in financial markets.
In Forex, cash flow is defined in terms of the number of traders active in buying and selling a currency pair, as well as in terms of trading volume.
The more you trade, the more cash flow there is.
For example, more people trade in EUR / USD than in AUD / USD and in higher volumes.
This means that EUR / USD is more liquid and more liquid than AUD / USD.
Main cross currency pairs or minor currency pairs
Currencies that do not have USD are known as cross currency pairs.
Crosses that include one of the major currencies are also known as ” minor “.
Although crosses are not traded as much as major currency pairs, they are still highly liquid and still provide many trading opportunities.
The more active crosses in terms of trading have the following three major currencies (excluding US dollars): EUR , JPY , GBP
Exotic currency pairs
Exotic currency pairs consist of a major currency on one side and the currency of an emerging economy on the other (such as Brazil, Mexico, Chile, Turkey or Hungary).
Want to try your luck and guess the exotic currency symbols?
Depending on your brokerage, different exotic currency pairs may be available to you for trading.
Keep in mind that the trading volume in these currency pairs is not as large as the “principals” or “crosses”, so the transaction costs for trading this currency pair are usually higher.
It is not uncommon to see spreads (the cost of buying and selling) that are two or three times EUR / USD or USD / JPY.
Exotic currency pairs are much more sensitive to economic and geopolitical events due to their lower cash flow.
For example, news of a political scandal or unexpected election results could cause sharp fluctuations in the exchange rate of an exotic currency pair.
So if you want to trade an exotic currency pair, never forget this important.
Did you know? According to the United Nations, there are 180 legal currencies in the world. This is a potentially large number of currency pairs! Unfortunately, not all of them can be converted or processed. Forex brokers usually offer up to 70 currency pairs for trading.
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