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Currency Pairs

mynote8209 2025. 5. 10. 14:54

 

🔹 What Are Currency Pairs?

  • In the Forex (Foreign Exchange) market, currencies are traded in pairs, known as currency pairs.
  • A currency pair shows how much of one currency (the quote currency) is needed to buy one unit of another currency (the base currency).
  • Example: EUR/USD = 1.1000 means 1 Euro = 1.10 US Dollars.

🔹 Structure of a Currency Pair

  • Base Currency: The first currency in the pair (e.g., EUR in EUR/USD).
  • Quote Currency: The second currency in the pair (e.g., USD in EUR/USD).
  • A pair is always quoted like: BASE/QUOTE.

🔹 How Currency Pairs Work

  • If you buy a currency pair, you are buying the base currency and selling the quote currency.
  • If you sell the pair, you are selling the base currency and buying the quote currency.
  • Profit is made by predicting the rise or fall of the base currency relative to the quote currency.

🔹 Categories of Currency Pairs

  1. Major Pairs
    • Most traded pairs globally.
    • Always include the US Dollar (USD).
    • High liquidity, lower spreads.
    • Examples:
      • EUR/USD (Euro/US Dollar)
      • USD/JPY (US Dollar/Japanese Yen)
      • GBP/USD (British Pound/US Dollar)
      • USD/CHF (US Dollar/Swiss Franc)
      • USD/CAD (US Dollar/Canadian Dollar)
      • AUD/USD (Australian Dollar/US Dollar)
      • NZD/USD (New Zealand Dollar/US Dollar)
  2. Minor Pairs (Cross Currency Pairs)
    • Do not include USD.
    • Slightly less liquid, wider spreads than majors.
    • Examples:
      • EUR/GBP (Euro/British Pound)
      • EUR/JPY (Euro/Japanese Yen)
      • GBP/JPY (British Pound/Japanese Yen)
      • AUD/NZD (Australian Dollar/New Zealand Dollar)
  3. Exotic Pairs
    • One major currency paired with a developing or emerging market currency.
    • Low liquidity, high spreads and volatility.
    • Examples:
      • USD/TRY (US Dollar/Turkish Lira)
      • USD/INR (US Dollar/Indian Rupee)
      • EUR/SEK (Euro/Swedish Krona)
      • USD/ZAR (US Dollar/South African Rand)

🔹 Factors Affecting Currency Pairs

  • Economic Indicators: GDP, inflation, interest rates.
  • Political Events: Elections, wars, policy changes.
  • Market Sentiment: Trader emotions and global confidence.
  • Central Bank Actions: Monetary policy, currency intervention.

🔹 Bid, Ask, and Spread

  • Bid Price: The price at which the market (broker) buys the base currency.
  • Ask Price: The price at which the market sells the base currency.
  • Spread: Difference between bid and ask; represents broker profit and market volatility.

🔹 Volatility in Currency Pairs

  • Some pairs move more (are more volatile) than others.
  • GBP/JPY and EUR/NZD are known for high volatility.
  • EUR/USD and USD/CHF are more stable and preferred by beginners.

🔹 Choosing the Right Currency Pair

  • Beginners should start with major pairs due to lower spreads and predictable behavior.
  • Advanced traders may use minor and exotic pairs for higher profit potential but with greater risk.
  • Always consider volatility, spread size, news impact, and liquidity.

🔹 Conclusion

  • Understanding currency pairs is essential for Forex trading success.
  • Currency pairs reflect global economic health and offer opportunities for profit 24/5.
  • Proper knowledge of currency pair types, behaviors, and influences will help you trade more effectively and confidently.

Currency Pairs