The Buying and Selling Currency Pairs in real-time is called Forex trading. We can buy and sell currencies through Forex brokers, also known as CFD providers. Currencies are traded in pairs, and their price is relative to other currencies.
Trading in the Forex market fundamentally means buying or selling currency pairs. The exchange rate is the price difference between two currencies from two countries.
The exchange rate fluctuates because one currency is more potent concerning another at any given time. It is important to monitor Buying and Selling Currency Pairs’ exchange rates to make an effective an effective trading strategy.
Currency pair examples include USD/EUR, JPY/CAD, CAD/EUR, etc. If you are wondering how to read currency pairs, let us learn it with an example of JPY/CAD. Here JPY is the Base currency, and CAD is the quote currency.
Types of currency pairs
(1) The Majors
(2) The crosses
(3) The exotics
Major currency pairs are those currency pairs that include USD in their pair, while cross currency pairs are the ones that do not contain the USD but do include any one major currency in its pair.
Exotic currency pairs, on the other hand, are those currency pairs that represent the emerging market. They contain one major currency and another currency from the third world.
Major Buying and Selling Currency Pairs
There are 8 major currencies but only 7 major currency pairs. All major currency pairs contain the U.S. Dollar; furthermore, these kinds of currency pairs are the most heavily traded.
Trading in major currency pairs provides more opportunities to earn profit as these pairs are volatile and fluctuate. In other words, the majors of all the currencies worldwide are the most liquid.
Liquidity signifies the frequency of activity in the financial market. The liquidity of a currency pair depends on the volume of its trade and the number of traders trading a specific currency pair.
The liquidity of the forex market will be higher if the trade volume is high because it will involve more buying or selling of currency pairs.
A quick glance
The Buying and Selling Currency Pairs in real-time is called Forex trading.
Let us learn it with an example of JPY/CAD. Here JPY is the Base currency, and CAD is the quote currency.
There are 8 major currencies but only 7 major currency pairs. All major currency pairs must contain the U.S. Dollar with any other major currency.
Cross-currency pairs are currency pairs that include any two of the major currencies except the U.S. dollar.
Currencies from developing or emerging markets are known as exotic currencies. One major currency with the currency of a developing economy makes an exotic currency pair.
The Scandies
The Scandies is slang for Scandinavia. Scandinavia is a geography spanning three kingdoms: Denmark, Norway, and Sweden.
BRIICS: BRICS is the acronym for the six major developing economies: (a) Brazil, (b) Russia, (3) China, (4) India (5) South Africa.
Major Cross-Currency Pairs or Minor Currency Pairs:
Cross-currency pairs are currency pairs that include any two of the major currencies except the U.S. dollar.
Trading of cross-currency pairs is not as high and frequent as the major currency pairs. But they, too, are quite liquid and present many financial trading opportunities to traders.
The most frequent trading of non-US-derived crosses is as follows: (1) EUR, (2) JPY, and (3) GBP.
Exotic Buying and Selling Currency Pairs
What comes to mind when you come across the word ‘Exotic’? Holiday packages in laid-back countries and dense and deep forests with tortuous routes take you to unexplored wilderness.
Well, if exotic conjure these images in your mind, you already know what an exotic currency is!
Currencies from developing or emerging markets are known as exotic currencies. One major currency with the currency of a developing economy makes an exotic currency pair.
One thing that should never escape our minds is that exotic currency pairs are not as heavily traded as the major currency pairs.
The transactional cost or currency spreads of trading in exotic currency pairs is generally steep because, in comparison to major currency pairs, trade in exotic currencies is not heavy and frequent.
Because of lower trade and liquidity, Exotic currencies are more prone to economic and geopolitical-induced fluctuations. On the other hand, Major currency pairs are practically full-proof to small and temporary economic or geopolitical development.
When it comes to exotic pairs, even a seemingly minor political scandal can cause a violent swing in its exchange rate. Remember the factors mentioned earlier while trading in exotic currency pairs will stand you in good stead at every step.
We have learned about Forex’s major and minor pairs. Now it’s time to know about other groups of currencies as well. These currency pairs are popular and traded a lot in the Forex Market.
The Scandies:
The scandies are also safe to trade in as we witness heavy trading of these currencies.
The Scandies is slang for Scandinavia. What we call Scandinavia is geography spanning three kingdoms: Denmark, Norway, and Sweden. They call their currency, in common, Scandies. These countries have a common currency with different denominational values.
Let’s cast a cursory glance at four other currencies from Central and Eastern European countries.
(1) BRICS: BRICS is the acronym for the six major developing economies of the world. These emerging economies are (a) Brazil, (b) Russia, (3) China, (4) India (5) South Africa.
(2) The currency pairs representing these economies are volatile and present many trading opportunities. Though the return on Investment in these currency pairs pales in comparison to Major currency pairs, their volatility makes them more fluid than other currency pairs other than the major ones.
G10 currencies represent some of the most powerful countries. They are named because they are the ten most frequently and heavily traded currencies on this planet. They are also the world’s top ten most liquid currencies. In short, trading these currency pairs is done openly in the open market without affecting their global exchange rate.
Conclusion
Buying and Selling Currency Pairs for trading is a complex process. Remember, your trade success will depend on the effectiveness of your currency pair selection.
A beginner in forex trading should trade in major currency pairs. Risk and fluctuation with other types of pairs are more than major pairs.
Also, a trader can’t monitor the price movement and market conditions of all the currency pairs. So it is better to select one currency pair and trade in that pair.
Cheers