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Choosing Currency pairs of Forex Trading


In forex trading, the term ‘currency pair’ is probably the most common term you will hear. A currency pair is a set of two currencies, tied against each other. When used to display a quote, the pair usually shows the value of one currency against the value of the other. Learn everything you need for Choosing Currency pairs.

 

Almost 80% of traders use the major currencies in their trading. Major currencies are the currencies of the developed countries. The currencies include Japanese yen (JPY), Australian dollar (AUD), euro (EUR), Canadian dollar (CAD), British pound (GBP), and the Swiss franc (CHF).  If you are considering entering the market, these are the currencies for you should trade with. This is because the currencies have the lowest broker commissions. In addition, the currencies have high liquidity; therefore, if you have a currency that you want to sell, you can easily get a buyer for it.

 

Reading the currency pair

 

Since the currency pair term is the most common term that you will hear in the market, it is paramount that you know how to read it. Since using an example is the best way to learn, the best example to use is the AUD/USD 1. O14. Here, the currency on the left is the base currency while the one on the right is the counter currency.  The base currency represents one unit of the currency. For example, it can represent one Japanese yen, one Australian dollar, or one American dollar. The base currency is usually a value that is enough to buy the other currency. In the example above, one Australian dollar is enough to 1.014 of the American dollars.

 

Just like any other trade, the currency pair is subject to fluctuations; therefore, you may find that the AUD/USD pair has moved from 1.014 to 1.017. This means that the AUD has increased in value over the USD. The increase in value can be due to strengthening of the AUD or due to weakening of the USD. Increase in value could also be because of the two factors.

 

The USD is the standard unit of currency in the market. Therefore, most major currencies are linked to it, for example, NZD/USD, USD/ CAD, and AUD/USD.  Although, most of the major currencies are linked to the USD, some are not linked to it. These currencies are called cross currency pairs. They include AUD/JPY, EUR/GBP, and EUR/JPY.  Although, these currencies are not linked to the US dollar, they are equally competitive to those linked to the US dollar.

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