Currency Pairs

Understanding currency pairs should be right up there on your list of things to learn first when starting to look at trading the forex market. We should all start with the basics.

Currencies are traded in pairs and not in isolation. For example when you hear in the news that the Euro is growing stronger, its strength is being compared to that of another currency such as the US Dollar. So the Euro is stronger but the Dollar is therefore weaker, or the Euro is going up and the Dollar is going down. If beforehand, as we all hope to do by the way, you believe the Euro will grow stronger against the Dollar then you would sell the USDEUR, sell the Dollar and buy the Euro.

The currencies you trade fall into three main groups - the majors, the minors and the exotics.

The majors are the most traded and therefore have the most liquidity (movement). The majors combine to make about 85% of trades made on the Foreign Exchange Market. While it may be possible to trade a whole variety of wired and wonderful currency pairs it's clear that most of the business is done with the US Dollar against another currency. There should be plenty going with those currency pairs to keep you occupied all day long.

The majors are:

EUR/USD USD/JPY GBP/CAD GBP/USD
AUD/USD USD/CHF USD/CAD GBP/EUR

Some of the so called minors would be:

GBP/CHF GBP/JPY GBP/NZD GBP/ZAR
CAD/CHF CAD/JPY CHF/JPY USD/ZAR

Finally an example of the exotics are:

GBP/MXN GBP/BRL GBP/CZK GBP/PLN
EUR/CZK EUR/HUF EUR/PLN USD/BRL

Currency - Symbol

Great British Pound - GBP
US Dollar - USD
Euro - EUR
Japanese Yen - JPY
Swiss Franc - CHF
Canadian Dollar - CAD
Australian Dollar - AUD
New Zealand Dollar - NZD
South African Rand - ZAR
Mexican Peso - MXN
Poland Zloty - PLN
Hungry Forint - HUF
Czech Kronor - CZK
Brazilian Real - BRL

A number of the pairs have some quirky nicknames to go with them. For example the GBP/USD is referred to as the "Cable" and the USD/CHF as the "Dollar Swiss" or "Swissy" but it not so important to be learning these. The important point to grasp is this, if you are buying EUR/USD you are speculating that the Euro is going to rise against the Dollar and if you are selling the EUR/USD then you are speculating that the Euro will fall against the Dollar's rise.

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