Knowing about forex currency pairs is the single most crucial factor in a currency trader’s success. In any given transaction, there is actually one currency bought and another sold.
But, with so many options, what pairs should you trade if you are a beginner trader?
Once you learn about currency pairs and their relationship, your approach to forex will be much more professional. In this detailed guide, we’ll tell you everything you need to know about currency pairs: its definition, types, reading them, price-influence factors, and which pair to trade as a beginner forex trader on BlueSuisse.
Forex Currency Pairs: An In-Depth Guide
A currency pair is the exchange of one currency with another. The currency at the left of the slash is called the base currency.
The logic behind exchanging assets between currencies is as follows: when the value of a currency increases, traders aim to profit from the rising market by transferring their investments to it. For instance, the base currency in the EUR/USD pair is the euro (EUR) and the second or quoted currency is the US dollar (USD).
In purchasing this pair, you are purchasing euros in US dollars. Currency pairs are traded constantly throughout the day according to supply and demand in the global forex market.
The exchange rate of the two currencies fluctuates minute by minute in response to economic and world developments that affect their values.
Forex pair trading is a way for traders to make money out of such exchange rate fluctuations. You buy the EUR/USD pair if you believe the euro is going to rise against the US dollar. You’d sell it if it came down.
Forex trading is the act of making bets on the movement of currency pairs over a period of minutes, hours, days or weeks. But with that many choices available on the forex market, how do you find the perfect pair for your investments?
BlueSuisse is a platform that allows you to trade between the most valued forex currency pairs in the forex market. Let's deconstruct them.
Types of Forex Currency Pairs: Major, Minor, and Exotic
In general, the most popular types of forex currency pairs in terms of liquidity and market availability are major pairs, minor pairs, and exotic pairs. It is critical to know the difference before deciding which to trade.
Major Currency Pairs
The most actively traded pairs are the major currency pairs, which consist of the US dollar and another major global currency. They constitute more than 90% of daily Forex trades and include EUR/USD, USD/JPY, GBP/USD, USD/CHF and USD/CAD. They have narrow spreads and high liquidity, making them perfect for trading for beginners.
Minor Currency Pairs
Minor pairs are less active than majors, but still incredibly liquid. They include the dollar and lesser-traded monetary units such as the Australian dollar, New Zealand dollar and Swiss franc. Spreads are slightly larger than major pairs, but there is higher volatility and trading potential.
Exotic Currency Pairs
The lowest volume exotic currency pairs consist of emerging market currencies paired against the dollar or major currencies. They have limited liquidity during local trading hours. Spreads are typically the largest of the three. Exotic pairs need more complex trades and are not generally open to new traders.
How to Do Analysis of Forex Currency Pairs?
Understanding exchange pairs is extremely important. They are presented as a “quote” with the base currency to the left and the quote currency to the right separated by a forward slash.
In EUR/USD example:
EUR = Euro (base currency)
USD = US Dollar (quote currency)
When viewing a price for this pair, such as 1.1500, it means:
- The euro costs 1.1500 US dollars
- Or one euro can be exchanged for 1.1500 US dollars
If the price moves higher to 1.1550, it means the euro has strengthened or risen in value relative to the US dollar. A lower price like 1.1450 signifies the euro has weakened versus the dollar. Understanding this display format will help you analyze price movements and determine profitable trade entries and exits.
Factors That Affects the Prices of Forex Currency Pairs
Since Forex is a constantly changing market, the value of currencies does not always remain the same. There are many political and socio-economic factors that affect the value of currencies.
Economic fundamentals and global factors can influence the supply and demand dynamics that determine currency pair exchange rates in a number of ways:
- Interest Rate differentials: Higher interest rates in one country will attract investors and boost its currency.
- High Inflation Rates: High inflation undermines a currency by reducing its purchasing power.
- Government Debt & Budget Deficits: Big deficits can dampen investor trust.
- Current Accounts & Trade Balances: Export demand strengthens a currency.
- Economic Growth & GDP: Strong growth boosts a currency while recessions sink it.
- Central Bank Actions: Interest rate cuts and quantitative easing dilute supply and weaken a currency.
- Geopolitical Events: Conflict, elections and political unrest trigger “safe haven” flows.
- Commodity Prices: The currency of commodity producers increases or decreases as oil, gold, etc. prices.
Professional forex traders always pay attention to the values of forex currency pairs to measure their market value and make maximum profits.
Keeping an eye on these macro drivers is key to understanding the fundamentals and trading major currency pairs smartly. Short-term movements can be fueled by technical indicators such as trends, support/resistance, and momentum.
What are The Best Currency Pairs to Trade in Forex?
Now that we’ve covered the fundamentals, let’s talk about specific suggestions regarding currency pairs that new forex traders should consider when starting out on BlueSuisse.
Below are some of the best currency pairs to trade in forex to consider:
EUR/USD
It is the most traded pair in the world and, as such, EUR/USD has very small spreads, large volumes and high liquidity all the time. It is a safe environment to learn price action, chart patterns, and trading strategies. Basic eurozone and US economic data is often volatile too.
GBP/USD
Another extremely liquid major pair, GBP/USD, is dominated by UK economic news. This pair also swings from the Bank of England interest rate policy. Its connection with EUR/USD allows for diversification and a good training environment for novices.
USD/JPY
As a sanctuary, USD/JPY enjoys two-way prices that are affected by global risk and Japanese interest rate stances. It has a lower range than EUR/USD, which makes it easier for novice traders to spot technical trends. Short spreads improve profits as skills become more advanced.
AUD/USD
With commodity exposure and a China-sensitive Australian economy, AUD/USD is volatile relative to other majors. But its strong institutional presence ensures liquidity. The spikes on Australian and US data make it exciting to discover the impact of macro events.
Making asset transactions with forex trading requires strong analysis skills and attention. The market can change every day and you should understand the forex market well in order not to lose money while making transactions between currencies.
At this point, it is useful to work with a strong provider. Whether you are a beginner forex trader or a professional, do not hesitate to get all the information and developments about forex with BlueSuisse.
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Reach out to our top-notch customer support team for any other queries you might have as you progress with your forex learning process.