Forex Trading: Understanding Different Currency Pairs

The foreign exchange market or the forex market is a decentralized market for trading currencies. With a daily trading volume of over $6 trillion, it is the largest and most liquid financial market in the world. To get started with forex trading, it is essential to understand the different currency pairs that are traded in the market.

Majors

The major currency pairs are the most actively traded pairs in the forex market. They are also known as the "majors." These pairs include:

EUR/USD (Euro/US dollar)

GBP/USD (Great British pound/US dollar)

USD/JPY (US dollar/Japanese yen)

USD/CHF (US dollar/Swiss franc)

AUD/USD (Australian dollar/US dollar)

NZD/USD (New Zealand dollar/US dollar)

Majors account for more than 80% of the total forex trading volume, which makes them less volatile and more liquid. Major currency pairs are associated with developed economies, and their performance is influenced by news events and different economic indicators released by central banks.

Minors

Minor currency pairs, also known as "cross-currency pairs," do not include the US dollar. Some of the most popular minor currency pairs include:

EUR/GBP (Euro/Great British pound)

AUD/CAD (Australian dollar/Canadian dollar)

GBP/JPY (Great British pound/Japanese yen)

EUR/CHF (Euro/Swiss franc)

NZD/JPY (New Zealand dollar/Japanese yen)

Minor currency pairs are considered to be more volatile and less liquid than major currency pairs. Minor pairs are often associated with emerging markets and carry greater risk due to their sensitivity to geopolitical events and fluctuations in commodity prices.

Exotics

Exotic currency pairs are currency pairs that are not frequently traded in the forex market. They include currencies from developing or smaller economies. Some of the most popular exotic pairs include:

USD/ZAR (US dollar/South African rand)

USD/TRY (US dollar/Turkish lira)

USD/HKD (US dollar/Hong Kong dollar)

EUR/SGD (Euro/Singapore dollar)

GBP/MXN (Great British pound/Mexican peso)

Exotic currency pairs tend to have a wider bid-ask spread, which means that they are less liquid and more volatile than majors and minors. Exotic currency pairs are not suitable for beginners due to the high volatility and risk involved.

Conclusion

Understanding the different currency pairs is crucial for successful forex trading. Different pairs have unique characteristics and require specific trading approaches. It is important to keep up with market news and economic releases to make informed trading decisions. Remember that forex trading involves risk, and it is important to invest only what you can afford to lose.

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