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If you want to trade successfully on the Forex market, you need to know the most important currency pairs, how they function and how to use them. Trading is a complex endeavor, but we’ve put together a list below of the most important things you need to know about currency pairs if you want to join the market and succeed.
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Participating in the Forex market involves moving money from one country to another. Forex is an abbreviation for “Foreign Exchange,” where retail investors convert currencies internationally.
As currency values differ across borders, you must be aware of the exchange rate. These rates fluctuate, so stay on top of market dynamics. The Forex Market, which is active 5 days a week that’s open 24 hours a day around the clock and around the globe, is the fastest and most liquid of all.
The four international trading hubs are in Sydney, Tokyo, London and New York. However, most banks, brokers, financial institutions, and retail investors perform transactions through a digital trading platform.
When a Forex transaction occurs, the three-letter codes are combined into pairs to indicate what entities are affected. Countries perform these at different frequencies, and thus different types of pairs exist. These types are classified into major, minor, and exotic pairing.
Below you will find a snapshot of forex market currencies in action. In real time, you can view the strongest and weakest currencies while seeing how they compare to one another.
The major currency pairs make up about 75% of all forex trades. Generally, the G10, which are the world’s leading industrial countries, make up the major pairs. Another reason these pairs are considered “major” is that they include the United States dollar. American currency is the chief currency globally with the most trades overall.
The top four currency major pairs are:
Traders choose to trade with major currency pairs because their spreads are typically tighter than other pairs, which makes it easier to enter or exit trades.
Considering these pairs are widely traded and heavily used, traders can easily buy or sell large positions without significantly moving the price of the pair. While slippage cannot completely be avoided due to the nature of trading, it is not as likely when compared to trading with less-traded currencies.
Forex pairs that do not involve the United States Dollar are called minor currency pairs. They are also not used as frequently in the Forex market as major pairs.
Common minor currency pairs include:
Exotic pairs include at least one major currency and an emerging economy currency. Forex traders pair major currencies with those of developing countries in this category. These types of currency pairs make a smaller portion in the market and thus are not as commonly traded.
Since exotic pairs include an emerging country, these pairs will typically experience more price volatility as a result. Some of the most popular exotic pairs traded include EUR/TRY, USD/HKD, JPY/NOK, NZD/SGD, GBP/ZAR and AUD/MXN.
Learning the ins and outs of international currency trading can be a worthwhile effort. Applying this knowledge can provide an opportunity to generate profits by coupling pairs that add value to your wallet. Some traders feel a good strategy is to start using major pairs to perform transactions and then move to minor and exotic combinations.
Now that we have covered major, minor and exotic currency pairs in detail, you can start trading them and boost your trading strategies to the next level.
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