But before we look at which are the major FX currency pairs, we need to look at what a currency pair actually is. All financial traders commonly seek a profit by speculating on the changing value of an instrument, such as the share price of a company or the worth of a commodity. Where Forex trading differs slightly is that you are speculating on the value of one currency relative to the value of another. This relative value is expressed as how many units the first currency is worth in terms of the second currency.
So if the US dollar against the Japanese yen exchange rate was If you were to look at live Forex prices on a trading platform, you would see a wide variety of Forex currency pairs listed.
You can see it in our currency pairs. In the currency pair list, you can see the Euro quoted against both the US dollar and the British pound. The advantage Forex trading offers, is that it allows you to pick which currency you think the Euro will weaken against the most. To the right of the symbols for the currency pairs, there are rates at which you are able to trade.
The bid is the rate that you are able to sell a currency pair at and the ask is the rate at which you are able to buy. These are also known as the bid and offer or sell and buy prices.
Because you think the Euro will weaken and the US Dollar will strengthen, you want to sell the Euro and buy the US dollar. To reiterate, you sell if you think an exchange rate will go lower and you buy it if you expect it to rise.
You may have noticed in the list of currency pairs that the Euro was quoted first against the US dollar Generally, the US dollar comes first in a pair, with the notable exception of when it is quoted against the Euro or the British pound. The Forex market is the most liquid market in the world, yet just a handful of currencies make up the vast majority of the market. There is no formal list that defines the major currency pairs or what the best currency pairs are.
But when we talk about the majors, we are usually referring to the six most actively-traded Forex pairs including:. Unsurprisingly, it is the currencies from the world's largest economies that comprise these Forex major pairs. The vast amounts of trade in goods and services conducted with the nations involved is one of the reasons behind their currencies being traded so extensively.
Another reason is the political and economic stability historically associated with these currencies. USD is supported by its status as the reserve currency of choice for central banks around the world and many key commodities e. After the US dollar, the Euro is the most commonly-held currency by institutions and governments alike.
There are varied pros and cons associated with all currency pairs, but the solid advantages of major currency pairs stem from their popularity. Meanwhile, there are regular economic updates for their underlying economies:. For example, the monthly US employment situation report from the US Bureau of Labor Statistics is one of the key financial releases in the economic calendar.
The latter increases the chance of the Federal Reserve tightening monetary policy and making a bullish effect on the US dollar - all other things being equal. As transaction costs are driven down by greater volumes, the more liquid currency pairs can be traded on much tighter spreads. It should be noted that even the most liquid currencies can still be volatile, given the right circumstances.
In the years leading up to this this incident, the safe haven nature of the Swiss franc alongside the eurozone debt crisis resulted in huge capital inflows into Switzerland. The SNB had decided to intervene in the Forex markets - buying foreign currency to depress the Swiss franc. In fact, smooth price action is a characteristic of liquid markets and extremely sharp moves are more common in less liquid markets.
The deep liquidity of the general Forex market and the major currency pairs in particular increases the ease of transactions. If you have insight or familiarity into a particular economy, you may naturally feel inclined to trade its currency - even if that means trading a pair that is not one of the majors.
Trading foreign exchange or contracts for differences on margin carries a high level of risk, and may not be suitable for all investors.
There is a possibility that you may sustain a loss equal to or greater than your entire investment. Therefore, you should not invest or risk money that you cannot afford to lose.
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What Are the Major Forex Currency Pairs and why should you trade them
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