In the world, there is no trading market more prominent than the forex market. It is open 24 hours a day, five days a week. It also has the highest degree of volatility, which makes it a market with more significant profit potential.
Typically, a forex currency pair includes the United States dollar and other currencies worldwide. Whenever a pair of currencies is used as a basis, the first currency, the British pound in GBP/USD, is the base currency. According to the example above, the quote currency is the US dollar.
As a general rule, the base currency of a trader is their home currency. The quote currencies are priced in units of the base currency, and they are equal to each other.
A EUR/GBP exchange rate of 1.45 means one Euro costs £1.45. Regarding EUR/USD, a value of 1.89 means 1 Euro would cost $1.89.
Forex currency pairs
You can find more information on forex currency pairs by reading the following article:
EUR/USD
There is a 24.0% share of daily forex trades involving EUR/USD, making it the market’s most actively traded currency pair. Because it represents two of the most important economies in the world, it has gained popularity.
The EUR/USD market is highly liquid, resulting in tight spreads because of a high daily volume. It is appealing to trade in a liquidity-driven market since large trades can be executed without adversely affecting the market.
A primary factor determining the EUR/USD exchange rate is the interest rate determined by the European Central Bank (ECB) and the US Federal Reserve (Fed). Since higher interest rates offer a better return on investment, currencies with higher interest rates will see an increase in demand.
‘The Gopher’ USD/JPY
The US dollar is paired with the Japanese yen in this currency pair. 13.2% of all forex transactions are carried out through this pair, making it the second most traded pair in the market.
Due to the Japanese yen’s dominance in Asian currency trading and the US dollar’s position as the world’s largest currency, USD/JPY is also known for its high liquidity.
Japanese interest rates are set by the Bank of Japan, much like those at the Fed and the ECB, causing the yen’s value against the dollar to fluctuate.
‘Cable’ GBP/USD
9.6% of all daily forex transactions involve the GBP/USD pair. A solid British economy and a robust US economy are the driving forces behind GBP/USD. Generally, currencies strengthen when economies grow very fast, so if the US economy grows faster than the UK’s, the pound will gain against the dollar.
‘The Aussie’ AUD/USD
Daily, 5.4% of forex trades are made in the AUD/USD pair. Among the raw materials responsible for a significant portion of the country’s GDP are iron and coal, which drive the value of the Australian dollar.
Because one of Australia’s primary sources of income is commodities, trading AUD when their value increases can be profitable when the currency strengthens against the dollar. AUD/USD will likely fall in value if the value of these goods falls. The Reserve Bank of Australia determines the interest rate on the Australian dollar.
‘The Loonie’ USD/CAD
The USD/CAD transaction rate for daily forex trades was 4.4%. Oil and gas are essential for the Canadian economy because they account for the highest share of GDP.
Through oil exports, Canada can earn a significant amount of USD because oil prices in the world market are in USD. Consequently, increasing oil prices will probably strengthen the CAD against the USD.
Bottom line
You should take into account several factors when choosing the right forex pair to trade:
- During what time of day will you trade
- Whatever your investment goals are, whether you are looking to make long-term gains or want to scalp smaller profits frequently, there is something for you.
- Understanding the foreign exchange market, the forex markets, and the global economy
You can make a healthy profit by trading forex pairs, but you must be patient and stay up to date with market trends.
