Currency Pairs

      Buying and selling of currency pairs Forex trading is the simultaneous buying of one currency and selling another.

Currencies are traded through a “forex broker” or “CFD provider” and are traded in pairs. Currencies are quoted in relation to another currency.

For example, the euro and the U.S. dollar (EUR/USD) or the British pound and the Japanese yen (GBP/JPY).

When you trade in the forex market, you buy or sell in currency pairs

Imagine each currency pair constantly in a “tug of war” with each currency on its own side of the rope.

An exchange rate is the relative price of two currencies from two different countries.

Exchange rates fluctuate based on which currency is stronger at the moment.

There are three categories of currency Pairs  

1 the major

2 the crosses

2 the exotic 

The major currency pairs always include the U.S. dollar.

Cross-currency pairs do NOT include the U.S. dollar. Crosses that involve any of the major currencies are also known as ” minors”.

Exotic currency pairs consist of one major currency and one currency from an emerging market (EM).

The majors are the most liquid in the world.

Liquidity is used to describe the level of activity in the financial market.

In forex, it’s based on the number of active traders buying and selling a specific currency pair and the volume being traded.

The more frequently traded something is the higher its liquidity.

For example, more people trade the EUR/USD currency pair and at higher volumes than the AUD/USD currency pair.

This means that EUR/USD is more liquid than AUD/USD.