A distinct currency exists in several countries around the world. The Japanese Yen, for example, is a currency used in Japan. On the other hand, some countries share a currency to do business with other countries easier (the Euro being one example).
If you wish to buy or sell a certain currency, you must do it in pairs. Therefore, one of the first skills that traders should acquire before entering and succeeding in the forex market is the ability to read currency pairs.
Determining the Value of a Currency Pair
A currency pair is a price quote for two currencies that are not the same. The base currency, also known as the transaction currency, is the first currency to appear on the pair quotation. The value of the base currency is determined by the second currency, known as the quote currency.
With the help of a reputable forex brokerage firm, forex traders trade currency pairs in the foreign exchange market. People can trade, buy, sell, and speculate currencies on this liquid market, available 24 hours a day, seven days a week.
Reading a Currency Pair Traders use a three-letter alphabetic code called an ISO currency code to identify currencies. GBP is the ISO code for the pound sterling, for example.
Traders then consider the buy price, the asking price, and the bid-ask gap. The “ask price” is when the base currency can be sold. On the other hand, the “purchase price” is how individuals can obtain the transaction currency. The gap between the two prices is known as the “bid-ask spread.”
Buying low and selling high is the purpose of forex traders. Buying currency pairs at a low price and selling them when the price rises is what this implies.
Changes in Currency Value: Measuring Changes in Currency Value
When the value of one currency fluctuates, the value of another currency adjusts as well. As an example, consider the GBP/USD currency pair. If the pound sterling price rises from $1.2305 today to $1.2309 tomorrow, the pound sterling has gained value against the US dollar. Unfortunately, this also means that the US dollar has devalued against the pound sterling, as buying a single pound sterling will cost the dealer more US dollars.
Traders use a unit of measurement called a pip to measure this change in value. 0.0001 is equivalent to one pip. Returning to the GBP/USD example, an increase of $0.0004 represents four pips if the currency pair rises from $1.2305 to 1.2309.
Quote currency definition
Forex brokerage businesses occasionally issue quotations with five decimal places, Quote currency definition .A fractional pip, often known as a pipette, is the term used by traders to describe this different place. The value of the GBP/USD currency pair grew by a tenth of a tip or one pipette from $1.23057 to $1.23058.
Examining the Different Types of Currency Pairs
The three primary categories of currency pairs are as follows:
The Most Important Currency Pairs (Majors)
The dollar and other large economies are constantly involved in this relationship. The dollar’s inclusion is mostly due to its unique status as its reserve currency. This means that all countries can trade with the US dollar, regardless of their currency.
Majors are interesting to foreign exchange traders because they are very liquid and often stable. Furthermore, the price fluctuates more frequently, providing traders with several opportunities to earn. Major currency pairings are a good place to start for forex newbies eager to make their
first trade.
Here are a few instances of majors:
GBP/USD
EUR/USD
USD/JPY
Pairs of Cross-Currency (Crosses)
A cross-currency pair is made up of currency pairs that don’t include the US dollar. Crosses aren’t as widely traded as majors, but they’re still liquid enough to create trading opportunities.
The following are a few well-known crosses:
Exotic Currency Pairs CAD/JPY EUR/GBP EUR/CAD NZD/JPY (Exotics)
Exotics are currencies that link the US dollar with a developing economy, such as Thailand, Brazil, or South Africa. Exotic currency pairs are riskier to trade because they are more susceptible to social, political, and economic developments. Social unrest, political scandals, and reports of economic deterioration are examples of events that can trigger immediate and significant changes in currency prices.
The following are a few couples that fall within the exotic category:
THB/USD (U.S. Dollar-Thailand Baht)
BRL/USD (U.S. Dollar-Brazilian Real)
ZAR/USD (U.S. Dollar-South African Rand)
Fair Forex allows you to trade currency pairs.
If you want to trade currency pairs, you’ll need a high-quality broker welcoming experienced and inexperienced overseas traders. Fair Forex is a brokerage firm you can rely on when it comes to trading currencies. We help traders succeed in the foreign exchange market by providing them with free access to signals, indicators, peer support, professional traders, and our excellent customer service.
