Currency is usually exchanged in pairs because you must also sell or purchase another when you buy or sell one. Every currency pair has a base currency and a quote currency; the base currency appears first, followed by the quote currency.
The price for a currency pair is the amount of the quotation currency required to acquire one unit of the base currency.
For example, in the EUR/USD currency pair, EUR is the base currency, and USD is the quotation currency. If the quotation price is 1.2000, one euro is worth 1.20 US dollars.
Forex pairs are divided into three types.
As our two main economies in the world, the Euro and the US dollar are the most often traded currency pair. It is the best forex pair to trade. The EUR/USD pair is popular because it represents the world’s two largest economies: the European Union and the United States.
This important pair is very liquid, the linked exchange rate is based on European Central Bank interest rate announcements, US Federal Reserve interest rate announcements, and NFP (non-farm payroll) releases.
Because of the huge daily number of EUR/USD transactions, the pair has a lot of liquidity, leading to narrow spreads.
This important pair consists of the British pound and the US dollar, which is thus affected by the health of the British and American economies. If the British economy grows faster than the American economy, the pound is expected to increase versus the dollar
This pair’s linked exchange rate is determined by interest rates set by the Bank of England and the US Federal Reserve. The UK’s exit from the EU is another aspect to keep an eye on with this duo.
The USD/JPY currency pair, sometimes known as ‘the gopher,’ is comprised of the US dollar and the Japanese yen. This is not unexpected given that the US dollar is the most traded currency in the world, while the Japanese yen is the most traded in the Asian market.
AUD/USD, known as the ‘Aussie,’ comprise the Australian dollar and the US dollar. The value of commodities exported by Australia, such as gold, iron, and coal, as well as interest rates set by the Reserve Bank of Australia and the US Federal Reserve.Forex charts - Bar, Line, Candlestick? — 2023
In the global market decline in the value of these commodities leads to a decline in the value of the Australian dollar.
This is a small pair since it lacks the US dollar. It comprises the British pound and Euro. Because of their physical proximity and extensive commercial ties, Europe and the United Kingdom are a tough duo to anticipate.
The price of EUR/GBP has been extremely volatile in the UK’s exit from the EU. Interest rates are set Bank of England and the European Central Bank. The price of this currency pair has fluctuated significantly in recent years.
The USD/CAD pair is called colloquially because the ‘loonie’ after the loon bird appears on Canadian dollar coins. One thing to keep an eye on with this combination is Canada’s reliance on the price of oil, its principal export. The Canadian dollar’s value grows in tandem with the price of oil.
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The USD/CHF currency pair, known as the ‘Swissie,’ consists of the swiss franc and the US dollar. The USD/CHF currency combination is attractive because the Swiss banking system has historically served as a safe haven for investors and their cash. CHF is not as commonly traded as the six previous currency pairings on this list since it is used mostly during times of economic turmoil or as a safe haven.
Because of the popularity of this combination, there is a large amount of data accessible, and hence this pair is very predictable.
The New Zealand dollar and the Swiss franc are minor pairs. Because of New Zealand’s growing agricultural importance across the world, any trader wishing to invest in this pair must keep an eye on global agricultural commodity prices. The Reserve Bank of New Zealand also has an impact on the price of this pair.
This important pair consists of the US dollar and the Chinese renminbi, sometimes known as the yuan. On the other hand, the term CNY refers to the trading of this currency on the onshore Chinese trading market. When the Chinese renminbi or yuan is traded abroad, it is known as CNH.
The main aspect to keep an eye on while investing in this pair is the trade war between the United States and China. Historically, the value of the CNY has fallen against the US dollar due to the Chinese government’s efforts to lower the price of its exports.
This main pair consists of the US dollar and the Hong Kong dollar. The Hong Kong dollar’s value is tied to the US dollar in a unique mechanism known as a linked exchange rate. The Hong Kong dollar is permitted to vary between HK$7.75 and HK$7.85 to US$1, and traders can profit from any price fluctuations within this range.
While EUR/USD has the highest daily traded volume among forex pairs, there are a number of other feasible currency pairings with significant liquidity that traders may use to try to make a profit. Before selecting a currency pair to trade, traders should consider a number of factors, and they should conduct their own technical and fundamental analysis to determine whether the currency pair is a viable trading option at that time, depending on central bank announcements or ongoing trade disputes.