Forex trading is all about purchasing one currency with another and selling the former one when its price increases. Thus, a trader makes a profit. Now, beginners in the process of educating themselves about Forex trading need to know the different aspect of cash. This is because they are the only stocks that a trader has to exchange while trading in Forex.
One needs to trade with a dealer or broker’s help when it comes to the Forex exchange business. But proceeding to that phase, he has to learn all the characteristics of a currency and the procedure by which transactions happen.
Currencies in Forex get traded in pairs. One of them gets quoted in regards to another. For instance, look at the term EUR/USD and GBP/JPY. The first one involves a trader to buying or selling the Euro with the US Dollar, and the second one is about buying or selling the British Pound with the Japanese Yen. View the website of Saxo and gain more knowledge about the currency pairs to boost your profit potentials.
The money a speculator invests in and the one he invests with, together, make a currency pair. He exchanges money depending on their respective exchange rate. An exchange rate is a comparative price between two different countries’ money. It always remains in flux based on their strengths at a given moment.
You will encounter three types of pairs:
Whenever you come across a pair that has the US Dollar in it, mark it as a Major. The US dollar can act as a base or a quote part. No matter what, only its presence in a pair is sufficient to make it a major couple. Here are all the major pairs:
In comparison with other types of currencies, the major ones have more liquidity, which elicits more opportunities. Liquidity refers to the volume of activity in the economic market. In the context of the Forex market, liquidity represents the number of traders who are actively engaged in a currency’s trading procedure.
2.The Crosses, and
There are seven more major currencies which do not include the US dollar. They are called a minor currency pair if the pair does not include any of the major currencies. Other pairs are just plain cross pairs. So, according to the equation, all minor pairs are cross pairs, but not all cross pairs are minor pairs.
The crosses are not traded like the minors, but they also have significant liquidity. If dealt with care, they also can evoke fortune for the traders in the Mena zone. The most prevalent crosses derive from three non-USD major currencies: EUR, GBP, and JPY.
These are the pairs that are built with one major cash and another one from an emerging market. In most cases, the non-major cash represents one of the emerging economies like Mexico, Brazil, Chile, Hungary, and Turkey. Below are some of the well-known exotic pairs:
As a trader, you must remember that these exotic pairs don’t get exchanged as much as the majors or the crosses. Therefore, exotic pairs have higher transaction costs.
Other than these major pairs, there is another kind that you may often encounter in Forex. And it is the G10.
These are the ten of the most massively exchanged and the most liquid currencies in the world. Speculators regularly do business with them with the least influence on these pairs’ respective exchange rates.
Denmark, Sweden, and Norway are together known as Scandinavia. The currencies used here are familiar as “Scandies.” They tend to share the same root in their name, and that is the “Krone.” Krone stands for the crown.
So, these are all pairs that you have to follow while trading in Forex. Keep learning and gain more profound knowledge about all of them.