Currency pairs are among the most popular questions I am always asked. But I should not be surprised, because we always focus on the advanced topics like technical analysis , candlesticks, indicators … and we forget about the basics. We do not consider that beginners may have difficulties in understanding the currency pairs that is the foundation of forex and forex trading through retail Forex brokers.
In the stock market , you trade the shares of the companies. You buy and sell them. You pay money to buy the stocks. But what if you wanted to trade or buy and sell currencies? It is the same in any other kinds of trading. You pay money to buy a commodity. In forex or foreign currency exchange, you trade currencies. So again, you have to pay something to buy something else. You pay a currency to buy another currency. You sell a currency against another currency.
To be able to do that, they have created currency pairs. For example EUR-USD is a currency pair. In each currency pair, the first currency is the commodity and the second currency is the money. In EUR-USD, the first currency which is Euro is the commodity and the second currency which is USD, is the money.
When you buy EUR-USD, in fact you pay USD to buy Euro. No matter in what currency your forex trading account is.
You can have a trading account in USD, GBP, CAD or any other currency. When you want to buy EUR-USD, your broker changes your trading account capital into USD and then pays that USD to buy Euro. This is how it works. Any trade in forex market has to be done through USD.
US dollar is the main currency and is the axis of all transactions on the currency market. Any currency pair that you buy or sell, has to be done through USD. These processes will be done automatically and you just need to click on the buy or sell buttons. On the forex market it is possible to sell EUR-USD even before you buy it.
Let me give you an example.
Currency Pairs - FXCM
You borrow my car for two weeks. You sell my car. But you have to return my car after two weeks, right? This is what we do when we sell a currency pair before we buy it. You sell EUR-USD high and buy it low. You sell it low and buy it lower. This is how to can make profit by selling a currency pair. They are just terms.
And when you sell, they say you have a short position because it may take a shorter time for the price to go down. So when we say we go long with EUR-USD it means we buy EUR-USD or indeed we buy EUR against USD, and visa versa.
Know When to Buy or Sell a Currency Pair - xelenew.web.fc2.com
There are four major currency pairs on the forex market: EUR-USD ; GBP-USD ; USD-JPY and USD-CHF. Among the four major currency pairs, EUR-USD is the most popular and has the highest volume of transactions.
Forex market is not limited to what forex traders do. In fact, forex traders are a very small portion of the forex market.
Sometimes they do it not because of making profit, they do it because they have to. Sometimes a country has to sell its own currency against another currency to lower its currency value and control its price. GBP-JPY is the king of the currency pairs for the retails forex day traders because it is so volatile. However, it is also so risky specially when it is traded through the shorter time frames.
The reason is it is so volatile and strong. Its trading signals are sharp and strong, and it has a wide movement scale. Forex day traders trade GBP-JPY to make more profit, but this double edged sword because your losses can also be so bigger. EUR-USD is the most liquid currency pair because it has the highest trading volume.
However, you will not have any liquidity problem in the forex market because it is such a huge market. It is not like the stock market that sometimes you can not find a buyer for the shares that you have already bought and you want to sell. Of course, there are two kinds of Forex brokers. Market maker brokers sometimes pretend that they have liquidity problems.
As I said, GBP-JPY is the most active and the most volatile currency pair.
EUR-JPY has the second position in volatility and activity. But it is a while that they have changed. GBP-JPY and then EUR-JPY are the most traded currency pairs among retail forex traders.
In general, GBP cross currency pairs are the strongest. GBP-AUD and GBP-CAD are also a strong currency pairs. I see some traders fall in love with a special currency pair and try to trade it only. You limit yourself and ignore the free opportunities that the forex market gives you. There are several currency pairs on the forex market that you can trade. Why should you ignore all of them and focus on one?
Currency pairs are not like different jobs that you have to focus on one of them to master it. A support line breakout is a sell signal in any currency pair. Find a valid support line on a currency pair price chart and go short after its breakout. No matter what currency pair it is. Do not believe everything you read and hear. Some people start writing articles and e-books when they give up on becoming a profitable forex trader. So they try to make money through selling their e-books and forex training courses.
When you follow the longer time frames like daily, weekly and monthly, you can trade several currency pairs when they form a trade setup on any of these time frames. Again I have my own answer to this question and my answer can be different from the other answers you may find over the Internet.
The best time to trade a currency pair is when it forms a strong and sharp signal. This question is mainly asked by the day traders who trade using small time frames like 5min or 15min. They want to have a trading session every day and they do not like to have any open position during the night. Whether I agree with this idea or not, I will not focus on it here because this article is about the currency pairs.
There are three main sessions on forex market: London session, New York session and Asian session. London session is from 8am to 4am GMT. New York session is from 8am to 4pm EST and Asian session is from 7pm to 3am EST.
Forex market has the highest volatility when both of the London and New York markets are open which is about 8am to 1pm EST. Then at 4pm EST that they close the New York stock market, the forex market becomes slow.
But after a few hours, Japan and then Australia start working and so forex market becomes volatile again. So basically this question is not a correct question.
You can trade any currency pair when market is moving and there is a strong trade setup. USD-SEK Swedish krona , USD-DKK Danish krone and USD-NOK Norwegian krone are the most famous exotic currency pairs. They are called exotic because of their pip value. Their pip value is much smaller than the other currency pairs like EUR-USD. When you trade one of these pairs for the first time, you may not believe your eyes when you calculate your stop loss and take profit.
A stop loss that has to be placed above the previous candlestick , has a several hundreds of pips value. Those pips are not like the ones your see in other currency pairs. I call them mini pips.
Exotic currency pairs are not limited to those three. There are also many other exotic currency pairs like USD-RUB Russian Ruble , USD-CCK Czech Krouna , USD-HKD Hong Kong Dollar , USD-HUF Hungarian Forint , USD-LVL Latvian Lats , USD-MXN Mexican Pesos , USD-PLN Polish Zloty , USD-ZAR South African Rand and…. Each forex broker supports a different number of currency pairs.
However, all of them support the 4 major currency pairs and most of the other popular and known currency pairs: EUR-USD GBP-USD AUD-USD NZD-USD. USD-CHF EUR-CHF GBP-CHF CAD-CHF. Almost all currency pairs are correlated to each other because they are dependent on USD, directly or indirectly. US economy and so the USD value impacts the whole world. However, some currency pairs like EUR-USD and USD-CHF are so correlated to each other and one of them goes up, the other one goes down, and visa versa.
You will trade the currency pairs only when you trade through the retail Forex brokers platforms. You learn more about trading the currencies through a bank account by following the below articles:. Thanks for the insights.
I spoke to a friend today and I asked him what he did for a living. I thought he was a Pro Golfer because he seems to golf in every country he visits.
He said that he trades currency! So I became interested and wanted to know more about it. Immediately I am online trying to get the basic understanding and this page has really educated me on the subject matter. I think I want to start trading myself. So, thank you very much for the insight! I recently become interested in the market myself, and have been studing the subject with much vigor. I find it very interesting.
For those individuals who want to engage in forex should determine the forex day trading. In this way, it will be easier for them to know what step is appropriate. Thanks a lot for the information. Thank you so much! It is absolutely free: In registering for a demo account I am being asked of account number, does it mean I should provide my real bank account information?
You have chosen to login to a demo account. That is why it is asking you to enter the account number. We follow more currency pairs now as per LuckScout followers requests: You can download it from here: What are your thoughts on the RMB currency? China establishes alternatives to SWIFT, IMF etc. Maybe you know their aggressive advertisements e. China wants to control the value of their currency and so they have not agreed to allow their currency to be traded on the global currency market during the past several years.
Forex Trading Currency Pairs
It seems now they want to enter the market, but they are just testing the water for now. If we made the right choice, the USD value will increase. Then, when we close the sell position, we automatically buy back euro, but since the USD we have is stronger now, we can buy EURO than when we sell and make a profit. However, the profit in pips is always USD, cause EURO is the commodity we sell and buy and USD is the money.
EUR value goes down. Great thorough post that is to the point at all times yet easy to understand! Is there anything your not good at? Thank you for your tireless dedication to this wonderful industry and to helping people by teaching them to fish instead of giving them one. Reviewing old topics with a lot of essential information of Forex trading is really enjoyable. I like it …. Thank you so much Chris.
I am a newbie in the industry.. Thanks to your lectures now I have a clue. Leave a Reply Cancel reply:. Your email address will not be published. Notify me of followup comments via e-mail.
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