Buying And Selling Currency Pairs

Buying one currency and selling another at the same time is known as forex trading.

Through “Forex brokers” or “CFD providers,” currencies are exchanged in pairs. The value of currencies is determined by their relationship to one another.

For example, the euro and the United States dollar (EUR/USD) or the British pound and the Japanese yen (GBP/JPY).

You buy and sell currencies in pairs while trading on the forex market.

Imagine each currency pair to be in a constant tug of war, each on its own side of the rope.

The price difference between two currencies from different nations is known as an exchange rate.

Exchange rates alter depending on which currency is strongest at the time.

Currency pairs are classified into three types: The “majors, ” The “criss-crosses,” The “extraordinary”

The US dollar is always included in the major currency pairs.

The US dollar is not included in cross-currency pairs. Crosses involving any of the world currencies are also referred to as “minors.”

One major currency and one currency from a developing economy make up exotic currency pairings (EM).

Major Currency Pairs

The “majors” are the currencies indicated in the table below.

Because they all feature the US dollar (USD) on one side, these are the most often traded pairs.

Despite the fact that there are EIGHT main currencies, there are only SEVEN important currency pairings.

Price fluctuates more rapidly with the majors than with crosses and exotics, providing more trading chances.

The majors are the world's most liquid markets.

The phrase liquidity refers to the state of a financial market's development.

In forex, it is defined by the number of active traders that are buying and selling a given currency pair, as well as the volume of trades.

The more frequently something is traded, the more liquid it is.

The EUR/USD currency pair, for example, is traded more often and in larger volume than the AUD/USD currency pair.

This suggests that the EUR/USD currency pair is more liquidity than the AUD/USD currency pair.

Major Cross-Currency Pairs or Minor Currency Pairs

Currency pairs that contain any two major currencies other than the US dollar are known as cross-currency pairings, or simply “crosses.”

The term “minors” refers to major crossings.

While not as liquid as the majors, the crosses nevertheless provide lots of trading possibilities.

Don't mix up minor currency pairings with the seven major currency pairs, which all include the US dollar trading against one of the world's six most liquid currencies.

The most widely traded crosses are EUR, JPY, and GBP, which are the three largest non-USD currencies.Euro Crosses

Yen Crosses

Pound Crosses

Other Crosses

Exotic Currency Pairs

Exotic pairs aren't twins who happen to be exotic belly dancers.

A currency from a developing or emerging economy is known as an exotic currency.

One major currency is matched with the currency of a developing country, like as Brazil, Mexico, Chile, Turkey, or Hungary, to form exotic currency pairings.

One primary currency and one exotic currency make up a unique currency pair.

A few instances of unusual currency combinations are shown in the chart below.

Do you want to take a stab at guessing what the other currency symbols mean？

You may notice the below exotic currency pairings based on your forex broker, therefore it's crucial to know what they are.

Bare in mind that because these pairings aren't as popular as the “majors” or “crosses,” the transaction fees of trading them are frequently higher.

Spreads that are 2 to 3 times larger than the EUR/USD or USD/JPY are not uncommon.

Exotic currency pairs are significantly more vulnerable to financial and geopolitical developments due to their general lower liquidity.

A political crisis or unexpected election results, for example, might cause the exchange rate of an exotic pair to move wildly.

Keep this in mind if you're considering trading uncommon currency pairs.

Here's a more extensive list for those of you who are truly enthralled with exotics.

WERE YOU AWAREN'T？ According to the United Nations, there are 180 legal currencies in the world. That's a lot of currency combinations to consider! Regrettably, not even all of them can be read. Forex brokers often provide traders with up to 70 currency pairs to choose from.

There are additional “groups” of currencies that are bandied around in the FX market that you should be aware of in addition to the three basic categories of currency pairings.

G10 Currencies

The G10 currencies are ten of the most actively traded and liquid currencies in the world.

Traders purchase and sell them in the open market on a regular basis, with no bearing according to their own international trading rates.

The Scandies

In local parlance, “Scandinavia” refers to the three kingdoms of Denmark, Norway, and Sweden.

Their currencies are known as the “Scandies” when used together.

Denmark and Sweden formed the Scandinavian Monetary Union to put their currencies on a gold standard back in the day. Norway became a member later.

This stated that these countries now shared a single currency with the very same monetary value, except that each country struck its own coins.

After World War I, the gold standard was abandoned, and the Scandinavian Monetary Union was disbanded. Even though the values were different, these countries elected to preserve the currency. And things are still as they are.

If you look at the names of the currencies, you'll see that they're all quite similar. That's because the term “krone” or “krona” actually means “crown,” and the variations in spelling reflect the variances across North Germanic languages.

Crown currencies are those that are issued by the monarchy. Isn't it a fantastic name？

“Yo, hook me up with some crowns,” says the narrator. “Hook me up with some dollahs, man,” sounds cooler to me.

“Stockie” and “Nokie” are two interesting nicknames for SEK and NOK.

When linked with the US dollar, USD/SEK and USD/NOK are referred to as “dollar stockies” and “dollar nockies,” respectively.

CEE Currencies

Central and Eastern Europe is abbreviated as “CEE.”

Central and Eastern Europe (CEE) is a phrase that refers to nations in Central Europe, the Baltics, Eastern Europe, and Southeast Europe (the Balkans), and mainly refers to former communist republics from Europe's Eastern Bloc (the Warsaw Pact).

Albania, Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovak Republic, Slovenia, and the three Baltic States of Estonia, Latvia, and Lithuania are all classified as Central and Eastern European countries by the OECD (CEECs).

There are four primary CEE currencies to be aware of in the FX market.

BRIICS

BRIICS is an acronym for Brazil, Russia, India, Indonesia, China, and South Africa, a group of six significant emerging countries.

The first four were previously known as “BRIC” countries (or “the BRICs”). To define today's emerging high-growth developing economies, Goldman Sachs invented the term BRICs.

The OECD coined the acronym BRIICS when it included Indonesia and South Africa.

Summary

Whew! That was a lot of currency information, but your FX IQ just went up a notch!

Let's review what you've learnt with a series of questions:

In forex, what is a currency pair？

A currency pair is a pair of currencies where one currency's value is proportionate to the other's. The value of the British pound versus the US dollar, for example, is GBP/USD.

What are the most popular currency pairings to trade？

The main currency pairings (“majors”) include the US dollar and the most often traded currencies. EUR/USD, USD/JPY, GBP/USD, USD/CAD, USD/CHF, AUD/USD, and NZD/USD are the seven.

What are the many types of currency crosses？

Currency crosses (or “crosses”) are the most often traded currencies that do not pair with the US dollar. EUR/GBP, EUR/CAD, GBP/JPY, EUR/CHF, EUR/JPY, and more cross rates are available.

How many different currency pairings are there？

There are THOUSANDS of currency pairings, but not all of them can be exchanged on the forex market. There are 180 currencies recognised by the United Nations at the moment. It's a lot if you combine each currency with another.