Most countries have their own currency, but in Forex there are not so many currencies that are traded actively. A currency pair, presented in a short definition, is a quote of a significant value of a national currency unit going against another national currency unit in the Forex market also known as the foreign exchange marker. In this article we are going to cover the basics of a Forex trader.
Which currency pair is the most popular one to trade?
There is one golden rule: Currencies must be traded in pair. The trading relation between the European Union’s Euro and the United States Dollar is the EUR/USD currency pair. This the most popular trading currency pair in the world, for example the trading value of the United States Dollar is 87.0% and the Euro has 33.4% trading value. The quotation GBP/USD 1.3540 means that there is an exchange rate of 1.3540 United States dollars. For this example the GBP is the base currency and USD is the counter currency.
Starting with the year 1999 the E.C.B. – European Central Bank configured the Euro as the base currency, this obviously means the all currencies that would follow to trade with this currency will used it first as a base currency, as a short example in the trading process with the USD the currency pair is the EUR/USD.
In general, the eight most traded currencies (in no specific order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).
What are the most important currencies in Forex?
The major trading currencies for the Forex trader are:
2) Pound Sterling
3) Australian Dollar
4) New Zealand Dollar
5) United States Dollar
6) Canadian Dollar
7) Swiss Franc
8) Japanese Yen
It should be noted that EUR/USD is way ahead of the other most traded currency pairs in terms of daily trading volume. That one pair does something like 50% more volume globally than both USD/JPY and GBP/USD combined.
Source: The Essential Soft Trading
For example the European Union’s currency is the Euro which in the Forex trading market can be found as EUR, the United States of America national currency is the US Dollar which can be found in the trading market under the abbreviation of USD, Japan has the Japanese Yen which is JPY. The United Kingdom has the GBP also known as the Pound. Australia has the AUD the Australian Dollar. Switzerland has the Swiss franc. Canada has the Canadian Dollar also known as CAD.
A currency which is used as a reference is named the “counter currency” or “quote currency” and the currency which is quoted in a trading process is named the “base currency”.
Almost every time and every where you might access the Forex trading market you will find the currencies as listed above but there are some cases when these currencies are listed as ISO currency codes for example ISO 4217.
Currency pairs that are trading as local currencies are named “cross pairs” or “cross currencies” for example the GBP/JPY currency pair. Another important aspect worth mentioning is that there are currency pairs which are based with the European Euro there are called “euro crosses” for example the EUR/GBP currency.
Which currency pairs should I trade?
There are plenty of special currencies and currency pairs in the trading field but it’s very important to know that not all of them are used across the planet there are some of them which are constantly traded on a daily basis Forex trading sessions. These trades are usually influenced by all major economical and political events in the world this usually gives a certain currency pair its stability and liquidity.
USD/EUR – As mentioned already, it is the most popular currency pair. It has also the lowest spread among modern world Forex brokers. This currency pair is associated with basic technical analysis. The best thing about this currency pair is that it is not too volatile. If you are not in a position to take any risk, you can think of selecting this as your best Forex pair to trade, without it causing you too much doubt in your mind. You can also find a lot of information on this currency pair, which can help prevent you from making rookie mistakes.
A short-list of recommended currency pairs by Nial Fuller
There is certainly a short-list of the crosses that I trade and that I recommend all my students trade. That short-list looks like this: AUD/JPY, EUR/JPY, GBP/JPY, and NZD/JPY.
These four cross pairs are the most widely followed and make a nice addition to the major pairs mentioned above.
Source: Learn To Trade The Market