The foreign exchange market uses currency pairs to determine the value of one currency against another. In currency pairs, the first currency is called the ‘base’ currency, and the second currency is called the ‘quote’ currency. The base currency lies at the beginning of the pair and the quote currency lies at the end of the pair. A quote currency price shows how much of a base currency is needed to buy one quote currency unit.
With over $5 trillion worth of currencies traded globally every day, the foreign exchange market, also known as the forex market, is the largest and most liquid financial market in the world. Trading in forex is always done in pairs. As a result, forex trading involves simultaneously buying and selling currencies. You can think of a currency pair as a single instrument, which you can either buy or sell. In such cases, players may exchange the euro against the US dollar (EUR/USD), or the British pound against the Japanese yen (GBP/JPY).
How Does Currency Trading Work?
There are two parts to currency trading. In forex pairs, the base currency is the first currency. A trader predicts whether the base currency will rise or fall against the second currency. Additionally, there is a second currency, which is referred to as the quote or counters currency.
Buying the pound against the dollar (GBP/USD), for example, is an indication that you anticipate pound strength over the US dollar. Normally, forex traders express profit and loss in secondary currencies.
The bid and offer prices of every currency pair are different. A currency’s buy rate and sell rate are determined by this rate. Currency pairs are priced at a rate at which a price maker (usually a broker) is willing to buy or sell them.
The Seven Major Currency Pairs Of Forex
When trading on the forex market, traders have a wide selection of currency pairs to choose from. Any currency pair that includes the US dollar (USD), the largest economy in the world, is considered a major currency pair. The foreign exchange market is dominated by major currency pairs. All of these 7 major forex pairs can be traded through spread bets or CFDs, and all are popular throughout the world:
- The euro and US dollar: EUR/USD
- The US dollar and Japanese yen: USD/JPY
- The British pound sterling and US dollar: GBP/USD
- The US dollar and Swiss franc: USD/CHF
- The Australian dollar and US dollar: AUD/USD
- The US dollar and Canadian dollar: USD/CAD
- The New Zealand dollar and US dollar: NZD/USD
Seventy-five percent of all forex trades are made on the major pairs. Market liquidity and trading volume are the highest in the majors. They make up the vast majority of all Telegram transactions. As a result of the largest volume of buyers and sellers, these pairs usually have the tightest spreads on bids (buys) and asks (sells). Spreads are the price differences between buying and selling. These seven major forex pairs are generally regarded as the most profitable to trade.
A Brief Explanation Of How Major Currency Pairs In Forex Work
Using the words buy/sell to represent long and short derivative positions, let’s look at how forex currency pairs can be traded through spread wagers.
A major forex pair is the euro versus the US dollar. The EUR/USD exchange rate is 1.47501/1.55803, for example (sell rate/buy rate). US dollars is the quoted currency and the Euro is the base currency. If the trader wants to buy one unit of the base currency, he must pay 1.55803 in the quoted currency, which is in this case US dollars. On the other hand, if the trader wants to sell one euro, they would receive 1.47501 US dollars.
If a trader believes the euro will gain value relative to the dollar, he or she may buy the EUR/USD pair. By moving on this EUR/USD position an investor is generally ‘going long’ In contrast, a trader can sell the EUR/USD pair – also known as ‘going short’ – if they believe that the euro’s value will fall.
Best Currency Pairs To Trade In Forex
Currency pairs involving some of the world’s strongest economies see the most significant trading volume. Some of these currencies are known as “safe havens”, while others are the currencies of countries with relatively stable economic conditions. Regarding major forex pairings, EURUSD, AUDUSD, NZDUSD, USDCAD, USDJPY, GBPUSD, and USDCHF are the best forex currency pairs to trade and rank on the top of the most actively traded forex currency pairs list.
Let’s quickly review them below.
A famous currency pair, the “Gopher”, combines the dollar and the yen. It is one of the most actively traded pairs because of the dollar’s worldwide acceptance and the yen’s popularity in Asia. Due to the abundance of buyers and sellers in the market, the exchange rate fluctuations for this pair are minimal, making it a highly liquid tradable asset. In addition, its spreads are among the lowest in the FX market, meaning you’ll spend less on each transaction.
This currency pair is recognized to have substantial trading activity because it derives from two of the most major economies in the world. This currency pair is highly liquid, with low spreads and trade volumes comparable to the USD/JPY. Since the relevant markets remain stable throughout the year, this currency pair is perfect for forex scalping, which involves making tiny but consistent profits.
The Aussie is also one of the most actively traded currency pairs. There is a common belief that the AUD/USD pair is interlinked with the risk or growth factors. Since Australia exports a lot of raw resources, the value of the Australian dollar (AUD) can be very volatile in response to changes in commodity prices, just like the Canadian or New Zealand dollar. Forex traders favor the AUD/USD pair due to its liquid market, favorable spreads, and correlation with global economic trends. Because the AUD/USD reacts quickly to economic releases and the central bank’s policies, it offers multiple trading opportunities to explore.
When talking about major forex currency pairs, the USDCHF certainly falls amongst forex best currency pairs to trade. Investors call it a safe haven asset. Because of Switzerland’s fiscal stability, investors in the foreign exchange market often buy Swiss francs (CHF) during periods of heightened market volatility. In addition, forex traders tend to favor this currency pair when there is a high degree of economic or political uncertainty. Even though it’s one of the most stable currency pairs and has numerous benefits for traders, it can lose favor when market circumstances are more stable. Notably, the Swiss franc’s appreciation against the dollar indicates a pessimistic outlook for the USDCHF.
This currency pair is widely acknowledged as a highly volatile financial instrument because of the rapid changes in value, exchange rate, and pip value. Significant gains are conceivable if you remain successful, but substantial losses can also come your way, especially during extreme market volatility. Because of the relative simplicity of entering and leaving the market in response to minute price fluctuations, the GBP/USD pair is a favorite currency pair for day traders. It is also a fantastic option for swing trading, another type of day trading in the forex market. Before placing any significant bets on this currency pair, a trader should brush up on the finer points of technical market analysis.
Trading “Loonie” involves a thorough knowledge of the factors that determine the value of the U.S. and the Canadian dollar. It is one of the most actively traded currency pairs. However, factors such as the abundance of natural resources in Canada and the close economic linkages between the two make the pair unpredictable. That’s why it is not uncommon for the USD/CAD pair to observe sudden shifts in price comprising hundreds of pips. Notably, the Canadian dollar generally follows the rises and falls in crude oil prices, making this pair extremely susceptible to changes in the price of oil.
New Zealand has a stable economy, a robust foreign bank base, a lot of foreign trade, and high local interest rates, all of which contribute to the country’s considerable international currency trading volume. That’s why the NZD/USD pair experiences high volatility and offers ample trading opportunities. Another reason could be that the New Zealand markets are the first to open on a trading day, allowing clients to position their trades well in advance for the events anticipated to occur in the upcoming days.
How To Trade Forex Major Currency Pairs?
Here are the steps you need to follow to get started.
Step 1: Register for a live trading account with a broker and deposit funds to begin trading immediately. You can also subscribe for a demo trading account to practice with virtual funds to hone your trading skills before going live.
Step 2: Choose the preferred currency pair from the list of forex currency pairs shared above. All the major currency pairings are available at nearly all forex brokers.
Step 3: Set your trading preferences, including lot size, order type, and more, and initiate a position.
Note: The foreign exchange market can be quite volatile at times and dealing with leverage can greatly increase the risk of loss. Therefore, as part of a sound trading approach, you should regularly implement risk management methods, including stop-loss and trailing-stop measures.
Successfully trading on the forex market with Telegram is made much easier when you understand the importance of major currency pairs in forex and how they relate to gains and losses. Keep up to date with news and informational resources available on our website. You can also subscribe to our forex signals or opt for a telegram to forex trading app for trade automation. For more information and strategies on how to capitalize on the best trading strategies, check out our weekly blog posts.