Major Currency Pairs And Their Characteristics
As you already know the forex market is all about currency trading. There are more than 170 currencies in the market that are traded daily. Speaking of which, you cannot start trading without knowing the currencies and their characteristics.
Although there are many currencies in the forex market, most traders will choose only a few of them. These are the major currencies that dominate almost 70% of the market.
In this post, we will discuss the top currency pairs and their characteristics. Meanwhile, you should check out the global market open times, so you know when to start trading.
What are the major currency pairs in forex?
Currencies in the forex market are traded in pairs. Traders will compare the value of one currency with other before carrying out a trade. Currency trading is all about buying and selling a currency. When the value of a currency goes up, you buy it, and when the value goes down, you sell it.
In a currency pair, the first currency is known as the base currency, while the second one is the quote currency. Let’s take the example of EUR/USD. The USD is the quote currency and the EUR is the base currency.
The value of a currency keeps changing due to various factors. For example, when USD goes up, EUR can go down, and vice versa.
How does currency pair work in forex?
As a beginner, you might find currency trading overwhelming. Before getting into forex, you need to know how the currency pair works.
Both base and quote currencies keep moving. As a result, the forex market is never stable. While one currency drops, the other rises and the cycle continues. The price movements in currency are what allow forex traders to buy and sell currencies. They study the market movements to make their trade decisions.
Top Currency Pairs In The Forex Market
For those unversed, there are a total of seven major currency pairs in the market. These are the currency pairs that are commonly traded worldwide. These currency pairs dominate the majority of the market as they are traded in large volumes.
- EUR/USD: Euro and US Dollar
This currency pair is probably the most traded in the forex world. It has a positive connection with the GPB/USB. However, it has a negative relation with the USD/CHF. Just so you know, the euro, the Swiss franc, and the British pound all have a positive correlation.
- GBP/USD: The British Pound Sterling and US Dollar
This currency pair has a positive correlation with the EUR/USD, while it shares a negative connection with the USD/CHF.
- USD/JYP: US Dollar and Japanese Yen
This is another very popular currency pair that is chosen by traders. The rising tension between the East and the United States is a big concern for this currency pair. This pair shares a positive relation with USD/CAD and USD/CHF.
- USD/CHF: US Dollar and Swiss Franc
This pair shows how many Swiss Francs are needed to purchase one US dollar. Trading this currency pair is popularly known as Swissie trading.
- NZD/USD: New Zealand dollar and US dollar
This pair indicates the value of 1 NZ dollar for every US dollar.
- AUD/CAD: Australian dollar and Canadian dollar
This pair shares a negative correlation with the USD/CHF, USD/JPY, and USD/CAD. This is because both Australian and Canadian currency has a positive connection with each other. These two currencies are known as commodity block currencies.
- USD/CAD: US dollar and Canadian dollar
This currency pair has a negative connection with the GPB/USD, EUR/USD, and AUD/USD. This is because USD is the quote currency in all of these pairs.
Different Categories Of Forex Currencies
Forex currencies can be divided into different categories in terms of economic and financial conditions. The main categories include:
- Reserve currencies
These currencies play a dominant role in the forex market. In this group, we have the Japanese Yen, the US Dollar, and the Euro. However, the role of the Japanese Yen as a reserve currency has been reducing for a long time. Over the years, the US Dollar has managed to stay on the top, followed by the Euro.
- Exporter currencies
This group includes currencies of nations like Japan, Singapore, and China. They accumulate large forex reserves through export business. The value of these currencies is influenced heavily by the status of the global economy.
- Commodity currencies
This includes Canadian dollars and Australian dollars. It also includes the South African Rand, the Brazilian Real, and the Russian Rubble.
- High-risk currencies
This category represents the currencies of nations with high-interest rates and deficits. For example: Turkey or Baltic nations.
Final Words
Understanding the currency pairs in the forex market is crucial for traders. If you are planning to enter this market, make sure that you study all the major currencies and how they are traded.
