The buying and selling of currencies in real-time are called Forex trading. We can buy and sell currencies through Forex broker,also called CFD providers. As you know, 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 with respect to another at any given time.
Currency pairs come in three different shapes
(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 a total of 8 major currency pairs, but only 7 major currency pairs. All major currency pairs contain the U.S. Dollar, furthermore these kind of currency pairs are the most heavily traded. Trading in major currency pairs provides more opportunity to earn profit as these pairs are volatile, and their price keeps fluctuating.
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 number of trade volume will be higher, because it will involve more buying or selling of currency pairs.
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. Cross-currency pairs have another name: Crosses.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 trading opportunities to traders.
The most frequent trading of non-US derived crosses are as follows: (1) EUR (2) JPY (3) GBP
The next topic which comes in currency is – surprise of all surprises.
Exotic Buying and Selling Currency Pairs
What comes to mind when you come across the word ‘Exotic’? Holiday packages in laid-back countries, dense and deep forests with tortuous routes take you to the unexplored wilderness? Well, if exotic conjure these images in the eye of your mind, you already know what an exotic currency is!
Currencies from developing or emerging markets are known as exotic currencies. One major currency yoked with the currency of a developing economy makes an exotic currency pair.
One thing that should never escape our mind is that exotic currency pairs are not as heavily traded as the major currency pairs. Transactional cost 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. Major currency pairs, on the other hand, are practically full-proof to small and temporary economic or geopolitical development. But when it comes to exotic pairs, even a seemingly minor political scandal can cause a violent swing in its exchange rate.
Keeping in mind the factors mentioned earlier while trading in exotic currency pairs will stand you in good stead at every step.
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 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, in fact, 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) BRIICS: BRICS is the acronym for 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, hence, present many trading opportunities. Though the return on investment on 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.
The first group of currencies we will discuss here is the G10.
G10 currencies represent some of the most powerful countries. These currencies are named such because they are the ten most frequently and heavily traded currencies on this planet.. These G10 currencies are also the world’s top ten most liquid currencies. In short,trading of these currency pairs are done openly in the open market without affecting their global exchange rate.