Currency pairs are a subject that definitely get the most questions, according to Forex experts. Those new to the world of Forex trading may be often confused by all of the talk about indicators, candlesticks or technical analysis when really, they need to get to grips with the basics of the Forex market – currency pairs. In the stock market, you buy and sell shares of companies. But, what if you wanted to buy and sell a currency? That is exactly how the Forex market works.
Currency Pairs Explained
All trades made in Forex will include simultaneously buying one currency and selling another, however, the currency pair itself can be viewed as one single unit. If you purchase a currency pair, you are buying the base currency and selling the quote currency. The buy price, known in Forex as the bid, refers to how much of the quote currency is needed in order for you to get one unit of the base currency. The sell, or ask price, indicates how much of the quote currency you will get for selling one unit of the base currency. For example, if the GPB/EUR currency pair is being quoted as GPB/EUR = 1.25 and you purchase the pair, this means that for every 1.25 EUR that you sell, you will receive £1. If you were to sell the currency pair, you would receive 1.25 EUR for every £1 that you sell. Want to get started? Visit easymarkets.com.
Popular Currency Pairs
One of the most commonly asked questions by newcomers to the Forex market is what are the most popular currency pairs. There are four major currency pairs – EUR/USD, GPB/USD, USD/JPY and USD/CHF. Amongst these pairs, EUR/USD is the most popular and also has the largest volume of transactions. Over seventy percent of transactions made on the Forex market are focused on this currency pair, but don’t mistake that for meaning that this amount of personal traders only trade this currency pair. Amongst personal traders, the most popular currencies are GBP/JPY and EUR/JPY.
How to Choose the Best Currency Pairs to Trade
When you are making a trade on the Forex market, it’s not unusual to wonder whether some currency pairs are better choices than others. However, as any experienced trader will tell you, there’s no one ‘magic’ currency pair that is going to bring you good results – it’s all about the market situation at the time. Any currency pair, according to experts, which shows a good, strong and sharp signal at the time of trading is the best choice to make. The worst thing that you can do is rely solely on trading one single currency pair – this limits your opportunities and can even lead to bigger losses. No matter which currency pair you end up trading with, being smart beforehand will lead you to good results.
Currency pairs are the basis of Forex trading, however, many new traders are still unsure of what they are and how they work. Before trading Forex for the first time, understanding currency pairs is crucial.