Foreign exchange currency pairs explained

Buying and selling foreign currency is the basis of the foreign exchange market.

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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”.

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.

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euro flag money transfers EUR exchange rates
EUR > GBP EUR > INR

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united kingdom money transfers GBP exchange rates
GBP > AUD GBP > BRL GBP > CAD
GBP > INR GBP > NZD

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Australian flag money transfers AUD exchange rates
AUD > BRL AUD > EUR AUD > GBP
AUD > INR AUD > MYR

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canada flag money transfers CAD exchange rates
CAD > EUR CAD > GBP
CAD > INR CAD > USD

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india flag money transfers INR exchange rates
INR > GBP
Refreshing in: 60s | Fri, 22 Nov 05:36pm GMT
USD AUD CAD EUR CNY GBP INR MXN PHP
1 USD = 1.0000 1.4737 Inverse: 0.6786 1.3293 Inverse: 0.7523 0.906791 Inverse: 1.1028 7.0392 Inverse: 0.1421 0.779668 Inverse: 1.2826 71.751011 Inverse: 0.0139 19.4169 Inverse: 0.0515 50.889887 Inverse: 0.0197
1 AUD = 0.6786 Inverse: 1.4737 1.0000 0.9021 Inverse: 1.1086 0.6153 Inverse: 1.6251 4.7767 Inverse: 0.2094 0.5291 Inverse: 1.8901 48.6887 Inverse: 0.0205 13.1759 Inverse: 0.0759 34.5328 Inverse: 0.0290
1 EUR = 1.1028 Inverse: 0.9068 1.6251 Inverse: 0.6153 1.4660 Inverse: 0.6821 1.0000 7.7628 Inverse: 0.1288 0.85981 Inverse: 1.1630 79.126297 Inverse: 0.0126 21.4128 Inverse: 0.0467 56.1209 Inverse: 0.0178
1 GBP = 1.2826 Inverse: 0.7797 1.8901 Inverse: 0.5291 1.7050 Inverse: 0.5865 1.1630 Inverse: 0.8598 9.0285 Inverse: 0.1108 1.0000 92.027654 Inverse: 0.0109 24.9041 Inverse: 0.0402 65.2712 Inverse: 0.0153

What is a currency pair?

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.

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How does a currency pair work?

The exchange rate of a currency pair is subject to change at any given time owing to various factors, which include:

  • Cause and effect. Even if you trade only in major currencies, know that cross currency pairs can have an effect on your trading. Imagine that the Federal Government announces a rise in interest rates. In such a scenario, the market would typically start buying the US dollar against major currencies. While pairs such as EUR/USD and GBP/USD would fall in value, the value of pairs such as USD/CHF and USD/JPY would yield better dividends.
  • Appreciation and depreciation. The appreciation or depreciation in the value of any currency has a direct effect on its pairing with other currencies. For example, if you feel the US dollar may depreciate more than the Euro in a given time period, you would stand to benefit by exchanging US dollars for Euros ahead of time. An appreciating currency can lead to cash flow into its country’s assets.
  • Demand and supply. In the international finance market, if there is a surge in the sale of any particular currency it becomes more easily available. However, if there’s not enough demand for the currency its price will fall in order to strike a new supply and demand balance.
  • Imports and exports. A currency’s value can have a direct impact on a country’s economy when it comes to international trade involving imports and exports. A general rule of thumb is that a weak currency is good for exports, but makes imports more expensive. Over time, this can decrease a country’s trade deficit.

What are major, minor and exotic currency pairs?

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How do I know when is the right time to exchange my currency pair?

Trading 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:

  • Economic factors. A host of economic factors can have an effect of currency pairs in the foreign exchange market. These include a rise or fall in a nation’s GDP, a variation in its cash rate, inflation, property bubbles, and so on.
  • Supply and demand of exports and imports. If there’s an increased demand for exports you can expect the currency to underperform in the near future. On the other hand, an increase in imports is a favorable sign for local currencies.
  • Economic crises. Economic crisis relating to any country or a larger geographical region can have an adverse effect on currency pairs. An example in case is the global financial crisis of 2007 and 2008 that affected various currencies the world over, the US dollar included.
  • Appreciation and depreciation. If you feel the currency you’re holding onto will appreciate in time, it makes sense to hold on to it. The converse holds true as well.

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.

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