Forex trading is always done in pairs (currency pairs), were one currency is bought and the other one is sold. These currency pairs make up what is known as the exchange rate. Below you can find the major currencies that are being traded in the Forex market.
Major Currencies in Foreign Exchange
Major Currencies (Majors)
Major Currency Pairs
About Currency Pairs
In currency pairs, the first currency is referred to as the base currency and the second one, as the counter currency. The base currency is always equal to 1 monetary unit of exchange.
However, when a currency is quoted against the US Dollar it is identified as direct rate and when a currency is not against the Dollar, it is called cross rate.
The quote currency is converted to a specific number of units of the base currency, which is also referred to as the foreign currency or counter currency.
Dominant Base Currency
Euro
EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD
British Pound
GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD
US Dollar
USD/CAD, USD/JPY, USD/CHF
Currency pairs are quoted with a ‘bid’ and ‘ask’ price. The ‘bid’ price is the price that you are willing to buy a currency and the ‘ask’ price is the price you are willing to sell a currency. Let’s take a currency pair as an example. If the price of the EUR/USD is equivalent 1.2 and you buy that pair, this means that for every 1.2 Euros that you sell, you will get $1. The same counts when you sell a pair.
We advise beginners to select one or two currency pairs to trade in for their portfolio. This is to make things simpler for the beginner and when the trader gained more experience and wishes to add more currency pairs, he/she can do that.
Bid and Ask Price
A generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.
Source: www.investopedia.com
Definition of 'Currency'
About Currencies
Let’s take as an example the currency pair of EUR/AUD. If it was at the price of 1.40 and this means that for every 1 Euro, you will get 1.40 Australian Dollar. Additionally, currency pairs are traded as 100,000 units of the base currency. Meaning that if you buy EUR/USD at 0.80 you will be paying Dollars for Euros.
100,000 x 0.80 = $80,000 for 100,000 Euros
Now, if you observe a quote rising, it means that the value of the base currency is getting stronger and if the quote falls, it means that the base currency is becoming weaker.
Example
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Goods in – goods out generates a trade balance
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Too high imports creates an exodus of capital, which is bad for a currency
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To high imports can create domestic demand constraints and encourage inflation
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Investors punish nations with too high deficit since that currency needs to become less attractive to allow exports to compete
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Deficits habitually do not last forever
Trade Deficit
Central Bank Bias
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Visit the official websites of central banks and read the notes of recent meetings
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These policy meetings directly address these issues and give out key metrics and hints as to what the next move might be
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You will hear individual bank members deliver speeches supporting these views
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Currency markets tend to trade numerous moves ahead and reward currencies supported by increasing rates.
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Gross domestic products measure a country’s production.
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Depending on their risk appetite some investors seek rapid growth.
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It keeps currency demand floating.
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Countries that grow strongest tend to have a firmer currency
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It identifies a lot about export and import demand
Growth
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The monetary policy is situated by: Central Bank-Government-Nations realize that manipulating currencies does not work
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A benchmark interest rate is set via market operations.
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The difference between yields paid across currencies in part governs the appeal of each.
Inflation
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Rising prices wear down growth-it builds an illusion of faster growth
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Falling prices are not good for an economy-it’s difficult to prevent loss of confidence
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Concept of real interest rates (Nominal interest rate minus rate of inflation)
Employment
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Rising employment is a sign of economic health
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Utilization accounts for 70% of US economy
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Wages are a key sign of growth trend
Interest Rates
What Drives Currencies
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Forex
Basics
