Understanding the Major Currency Pairs

When discussing a home Forex business with people, one of the standard questions that I am asked (especially by those who are used to trading stocks and shares) is “So what currency do you trade?” The question assumes that we are buying a single currency, holding onto that currency and then selling at a later date for a profit. This is not strictly the case.

Whenever a Forex or currency trade takes place two currencies are always involved. These are referred to as currency pairs. When a trader places a trade, the question he asks is what is the strength of the two currencies relative to one another? Do I believe that currency A will become stronger or weaker against currency B?

In order to make currency pair identification easier, abbreviations are used to identify individual currency pairs. The US dollar is by far the largest of all the worlds’ currencies and is the most popular of all the currencies being traded. At this moment time in it is the currency of the largest world economy, it is perceived to be stable, it is the major international reserve currency and it is used as the basis for many cross border transactions e.g. oil.

The following are the most frequently traded currency pairs that include the United States Dollar:

  • The Euro-United States Dollar (abbreviated to EUR/USD and known as the Euro Dollar)
  • The Great Britain Pound- United States Dollar (GBP/USD also known as the Cable)
  • United States Dollar – Canadian Dollar (USD/CAD, the Dollar CAD also known as the Loonie – named after the bird in the Canadian flag)
  • United States Dollar – Swiss Franc (USD/CHF, the Dollar Swiss or the Swissy)
  • United States Dollar – Japanese Yen (USD/JPY, the Dollar Yen)
  • Australian Dollar – United States Dollar (AUD/USD, the Aussie Dollar or simply The Aussie)
  • New Zealand Dollar – United States Dollar (NZD/USD, known as the Kiwi)

Often when analysts talk about a currency, they will discuss the impact of an event on an individual economy, i.e. whether the event will strengthen or weaken the economy, which in turn may impact on the currency. This is where the trader needs to make two choices.

Firstly, which currency pair to choose. This article has detailed seven currency pairs which include the USD. If the event is based on an event impacting on the American Dollar, then the trader should decide on which currency pair to choose that will bring the biggest gains. Secondly, the trader needs to be aware of the order a currency pair is defined.

For example, an event is due to take place and the analysts believe that the result will strengthen the US Dollar. If the trader was to select the Swissy to trade where this USD is the first currency defined in the currency pair, the Dollar would strengthen and increase the relative strength of the Swissy, i.e. the value would increase and a Buy (also known as going Long) trade would be implemented. However, if the trader has selected the Cable for his trade, where the Dollar is second currency of the pair, the value of the Cable would actually decrease. The trader would therefore Sell or go Short as the British Pound has weakened against the Dollar. The major currency pairs identified here account for over 70% of all the trades in the Forex market.

It is this volume or liquidity that makes them so attractive to the home Forex trader. The training and education that I have received has enabled me to better understand how the major currency pairs operate.

Kaz Kowalski has been highly successful as a project management consultant working on a number of high profile projects in blue chip companies across a variety of industries including Banking, Information Technology and Telecommunications. He has utilised his analytical ability to review and determine the profitability and effectiveness of different home business opportunities in building viable and profitable business models. As a result of his analysis, he has concluded that a Home Forex Business has significant advantages over the majority of other home business opportunities.

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