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Buying and selling foreign currency is the basis of the foreign exchange market. In basic terms, forex means buying or selling a currency in exchange for another currency.
The two currencies together are called a currency pair. There are both major and minor currency pairs, with the US dollar involved in both types of pairs.
People who trade in currencies refer to the most commonly traded pairs as Majors. These account for around 85% of the foreign exchange market, exhibiting high market liquidity.
A currency pair refers to the quotation of the value of one currency in comparison to another. It is common to refer to the currency used as quote currency or counter currency.
The currency quoted in relation — represented first in the currency pair — is the base currency or the transaction currency. A currency pair essentially shows how much of the quote currency you need to purchase one unit of the base currency.
Accepted global priorities attributed to different currencies have a bearing on the rules that formulate standard currency pair notations. Since its inception in 1999, the European Central Bank stipulates that the Euro take precedence over others as a base currency.
As a result, all currency pairs that include the Euro have to list it first. This is why the EUR/USD currency pair notation denotes the exchange rate between the US dollar and the Euro.
The use of nicknames to refer to popular currency pairs is common. Traders refer to the GBP/USD pairing as cable and to the EUR/USD pairing as Fiber. The EUR/CHF pair takes the nickname “Euro-Swissy” and referring to the USD/CAD pair as “the funds” is also common.
The exchange rate of a currency pair is subject to change at any given time owing to various factors, which include:
What are major, minor and exotic currency pairs?
Back to topTrading in foreign currency requires that you pay attention to multiple factors. When it comes to exchanging currency pairs, here’s what you need to know:
If you’re new to the world of trading in foreign currencies, it’s in your best interest to learn the ropes first. Know that currency pairs are subject to fluctuations, predicting which can be rather difficult. It is also important that you don’t rely overly on online foreign exchange trading software to do the work for you.
What are cross pairs and Euro pairs?
Cross currency pairs refer to currency pairs that don’t involve the US dollar. Examples include AUD/JPY and CAD/RUB. Euro crosses are currency pairs that involve the Euro.
Which are the most traded currencies by value?
The top five include the US dollar, the Euro, the Japanese yen, the Pound sterling, and the Swiss franc.
What are “exotics?”
These refer to pairs that include currencies of emerging and developing economies. Some commonly traded exotic pairs include USD/MXN, USD/BRL, and USD/ZAR.
What are some of the common nicknames of different currencies?
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