Forex

Pairs 

Majors are the most liquid and widely traded currency pairs in the world. The majors are: EUR/USD, GBP/USD, USD/JPY, USD/CHF.

Understanding The Forex Majors

Talking Points

  • Foreign exchange rates are quoted in pairs

  • The Majors, refer to actively traded Forex currencies

  • Major Pairs reference major currencies coupled with the USD

By now you probably know that foreign exchange rates are quoted in pairs. While this is important, it is also imperative to know exactly which currencies are being referenced in these pairs. Whether you are preparing to place your first trade or are a seasoned pro analyzing extensive research having a firm grasp on which currency is which will ultimately influence your decisions.

To help today we will review the Forex market Major Currencies and Pairs.

The Majors

When trading Forex, it is inevitable that traders will run across currencies known as “The Majors”. This term is in reference to the most frequently traded currencies in the world, with the list normally including the Euro (EUR), US Dollar (USD), Japanese Yen (JPY), Great British Pound (GBP), Australian Dollar (AUD), and Swiss Franc (CHF).See the graph below, and you will find a list of the Major currencies along with their associated country and ISO symbol.

The Symbol is how you will know exactly which currency you are trading when referencing a Forex Bid/Ask quote. However, it is also important to review each currencies nickname. These names will often come up in research and will be handy when communicating with other Forex traders.

Major Currency Pairs

Next we will take a look at currencies pairs that are considered “Major Pairs”. The Major Pairs are a reference to any of the major currencies listed above when paired with the USD. For example, the EURO is considered a major currency, but when paired with the USD (EUR/USD) the quote becomes a reference to a major pair.

Understanding Currency Crosses

Talking Points

  • Foreign exchange rates are quoted in pairs

  • Major Pairs reference major currencies coupled with the USD

  • Cross Pairs reference major currencies coupled with a non USD currency

Foreign exchange rates are quoted using two currencies, which then are combined to create a currency pair. The majority of these pairs are created using the G-8 currencies listed below which are then divided into two classifications, Major Pairs and Cross Pairs.

Today we will continue our review by briefly explaining exactly is meant by a currency cross.

Currency Cross Pairs

“Major Pairs” are considered when any of the Major G8 currencies are coupled with the USD, such as the EUR/USD. A cross pair is one that does not include the USD. These currency cross pairs were created to ease the process in which traders could exchange money. Not only were transactions simplified without first having to convert to USD as a common medium, but now traders can also trade while avoiding USD volatility.

The other major benefit to trading cross pairs is for their strong trending markets. One example of a currency cross pair is the EUR/AUD. For the 2013 trading year the EUR/AUD moved a total of 3378 pips from low to high. This is nearly 4x the movement of the EUR/USD! The EUR/USD major only managed a move 848 pips, measured from low to high for the 2013 trading year.

Other cross pairs for the Euro includes the EUR/GBP, EUR/AUD and EUR/JPY to name a few.So remember next time you open your platform there are opportunities outside of the majors, and look for the currency crosses.

What is Forex

The Structure of the Forex Market

 

The term "interbank" originates from the participation of the world's largest banks traded currencies with each other based on credit relationships. "Mutual trust between the inner circle of too-big-to-fails", one might call it in a post-Occupy Wall Street culture.

 

However, it's important to understand that many of the orders placed by the banks are actually for their clients.

These top tier banks, of course, would only accept business from extremely large clients such as larger hedge funds, major multi-national corporations (whose subsidiaries cross national boundaries), medium to small banks, and FX Prime Brokerage companies.

 

The Prime Brokerage companies then provide services to their own customers, which often include smaller hedge funds and many retail Forex brokers (who offer margin-based trading to individuals, and smaller companies and money managers.)

 

While the top banking institutions in the world are, in a literal sense, the only real "market movers" of the FX market, a large portion of their orders are a netting of orders originating from lower members of this Forex food chain.

The reason this is important is understand is that FX market movements are still the result on human decisions with a heavily influence from herd mentality.

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by WooHoo Ireland

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Woooo Fx Education

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Trading in leveraged currency contracts comes with substantial risk. You must be aware of these risks before opening an account to trade. High leverage amplifies gains as well as losses, leading to potential loss of the entire account balance. Trading in leveraged currency contracts may not be suitable for every investor. Never speculate using money that you cannot afford to lose.

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