What is a currency Pair?
This is essentially a quotation of currencies traded on the Forex market. When two currencies are paired it gives the price or exchange rate between both currencies. The base currency is normally written first in the pair while the second currency is called the quote currency. So for example the EURUSD currency pair is between the Euro Dollar (EUR) as the base currency and United States Dollar (USD) as the quote currency. Any currency can be paired with another and be traded. However not all currency pairs are traded openly on an international scale.
Major pairs are the currency pairs that has the USD paired with the EUR, GBP, CHF, JPY, CAD, AUD and NZD.
|EUR/USD||Euro zone / United States||“Euro Dollar”|
|GBP/USD||United Kingdom / United States||“Pound”|
|USD/CHF||United States/ Switzerland||“Swiss Dollar”|
|USD/JPY||United States / Japan||“Yen”|
|USD/CAD||United States / Canada||“dollar loonie”|
|AUD/USD||Australia / United States||“Aussie”|
|NZD/USD||New Zealand / United States||“Kiwi”|
These pairs are the ones mostly traded and are most volatile. All other currency pairs are influenced in one way or another by the major currencies.
All currency pairs that do not contain the USD is considered a cross-currency pair. There are a number of cross currency pairs that are traded daily. the Major cross currency pairs are called minors. The minors will contain either GBP, EUR, AUD, NZD, CHF or CAD. All other cross-currency pairs are called "crosses".
Influence of Major Currencies
As stated before all of the Major currencies will influence all the other currencies is one way or another. With the USD being the mostly widely used currency any movement in the USD and its market will influence to some degree the trading price of all other currencies. The other Major currencies will affect the USD but not large basis. Due to price fluctuation in the Major currencies all other currency pair will reflect a particular change.
Why are they paired
Well it's a market place for currencies and in every market place there is buying and selling taking place. The currencies are paired to give faster quotation between the two currencies. For the euro dollar (EURUSD), if it's at a price of 1.3654 it means that for 1 euro (EUR) you will get 1.3654 dollar (USD).
What does the quotation mean?
Quotations for a given currency pair normally has two values, one for buying and one for selling. There will be a difference in the values, this difference is referred to as the spread which will be explained in more detail in a future post. So for example EURUSD quote 1.3654/1.3649, the higher quote (1.3654) is what you as the trader would pay for buying the EUR and the lower figure (1.3649) is what you get if you sell the currency. The spread for this particular quote is 0.0005 (1.3654-1.3649). Spreads will change from day to day depending on market conditions, volatility and broker.
Join us next time when we speak about different trading platforms.
Like us on facebook at Compass Trading Association
And join our group for weekly trading info Compass Trading Association