If you are new to the world of foreign exchange trading, one thing you should have at the tip of your fingers is a working knowledge of the four Forex major currency pairs. These four are the most commonly traded and most widely used currencies in the world. Understanding how they work and why they are used is the key to Forex success.
The first currency pairs, we will look at are the US Dollar and the Euro. These two are perhaps the most widely traded currencies in the world. This is because the Euro and the US Dollar are tied together for a similar economic purpose. That meaning, it is very easy to trade these currencies and gain profit.
Other than these two major currency pairs, Forex is not really very complicated. Its just four different currencies working in isolation. Traders use these four pairs to “buy” or “sell” a specific currency and then exchange it for another. The problem with Forex though is that not all of these trades are conducted in real time. Some traders use Forex as means of “paper trading” since the exchange rates between currencies aren’t always updated in real time.
The next type of currency pairs, we will look at are the major and minor currency pairs. Major currency pairs are the currencies that cross over each other on a daily basis. For example, if you are selling USD/JPY, you are technically selling Japanese Yen (the currency of Japan). This makes it very simple to get a hold of the current exchange rate for a particular currency pair.
On the other hand, let’s take a look at the opposite end of the spectrum. Major currency pairs, such as GBP/USD, EUR/GBP, USD/JPY, and GBP/CHF represent the most powerful global economies in the world. These types of forex currency pairs are usually traded through banks, central banks, and by private individuals. For this reason, they are not covered in our technical analysis today.
The final category of currency pairs we will look at are the “specialized” currency pairs. These currency pairs have increased in volatility over the past several years. For instance, they used to be sold off by large banks and financial institutions with significant economic influence. Today, these pairs are traded by individual traders and speculators.
One of the most common specialized currency pairs is the EUR/USD. This particular pair is made up of the euro against the dollar, making it one of the more reliable “charts currency.” The EUR/USD is closely tied to the US Dollar, and is often times the largest trading pair in the world. This means that changes in the value of this pair could significantly impact the markets.
The above categories show us just a small glimpse into what there is to learn about the most important and popular international currency pairs in the Forex markets. Just remember to always do your research before investing in any currency pairs including the ones we have just looked at. By doing so, you will ensure that you make good money on your investments. Even if you decide to jump right in now and start trading, remember to stick with the major cross currencies first. This will ensure that you don’t lose everything you have invested.
There are also a number of indicators that can help you track liquidity. These indicators are very helpful because they can determine when the market is experiencing “volatility.” Volatility is defined as the amount of variation between the price or value of a currency and the interest rate. When there is a large amount of volatility, it means that the quantity of buyers and sellers are changing up the price or value of the Forex currency pairs being traded. By monitoring these changes, you can determine when the Forex market is experiencing heightened liquidity.
The price of any Forex pair currencies will rise and fall based on several different factors. The most common of these factors are fundamental, which means that it is affected by global economics and supply and demand. Technical analysis on the other hand, is less driven by fundamental factors but instead depends more on the history of behavior of the major pairs. Traders use this information to predict how the pairs will trade and where they are likely to make money. The more accurate the information traders have about the liquidity of the Forex market, the better the traders’ chances of profiting from their trades.
In addition to predicting when the liquidity in the Forex market will increase, it is also important to know what kind of reaction the Forex major currency pairs are likely to have to economic, political, and other external variables. For example, if a new war breaks out in a region, the currencies of that area could change. However, if that war does not happen, then the strength of the currencies in those areas will not change. The fluctuations in the Forex major currency pairs do not take away the traders’ ability to predict when the price of a particular currency pair will go up or down. They only enhance that likelihood.