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1
Introduction
1
Understanding Currency Pairs
A currency pair quotes two national currencies against one another for trade in the foreign exchange market. Each listed currency has its own exchange rate—the first currency is called the base currency, while the second is known as the quote currency.
A currency pair describes how much of the quoted currency is required to buy a single unit of the base currency. All currencies are listed using a three-letter International Organization for Standardization (ISO) currency code, such as EUR (euro) or USD (U.S. dollars).
Forex trading involves trading currencies in pairs against one another. That means investors and traders must always trade two currencies simultaneously as a pair.
The foreign exchange market operates using currency pairs. When carrying out a forex trade or transaction, market participants are required to make purchases using one currency and sell in another.
Pairs can only be purchased (going "long") or sold (going "short") as a single unit. The action taken (buying or selling) is directly applied to the base currency, while the opposite action is applied to the Countercurrency. For example, if you Trade Long (BUY) EUR/USD you are Buying EUR and Selling USD.
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Major Currency Pairs
The rates of major currency pairs can be impacted by numerous factors across the globe, including inflation, war, socioeconomic events, political events, government debt, recessions, interest rates set forth by the central banks of certain countries (such as the Federal Reserve in the U.S.), speculation, and more.
There are seven major currency pairs in the forex market. These pairs typically have liquid markets that are accessible to traders 24 hours a day during the business week. Because these pairs are the most commonly traded across the globe, they typically have tighter spreads—which can lead to higher profit margins.
The Euro and U.S. dollar, or EUR/USD, is the most popular currency pair in the forex market. Because it’s traded so frequently, it's considered the most liquid pair in the world.
The major currency pairs are:
The seven major currency pairs play a significant role in the global forex market and are the most highly traded.
As the third most popular trading pair, the British pound and U.S. dollar pair represents the cost of a single British pound in U.S. dollars. The GBP/USD is responsible for around 11% of the overall forex market and is impacted by central banking activity in the U.S. and United Kingdom.
The EUR/USD pair represents the cost of a single euro in U.S. dollars. Because the European Union euro and the American dollar represent two major global economies, this pair is often preferred among traders. Inflation, recession, war, and other economic factors can impact the EUR/USD exchange rate.
The USD/JPY pair is the number of Japanese yen equal to the value of a single U.S. dollar. Because the U.S. is the largest economy in the world and Japan is the third largest, this pair is one of the most liquid and popular currency pairs in the world. Considered a safe haven, USD/JPY can be influenced by factors like the disparity between the interest rates set by the Bank of Japan and the U.S. Federal Reserve.
USD/CHF is the number of Swiss francs equal to one U.S. dollar. Also referred to as “trading the Swissie,” this pair is sometimes viewed as a safe haven due to Switzerland’s financial and political stability. Employment rates, GDP, and the disparity between interest rates dictated by the U.S. Federal Reserve and Swiss National Bank can impact the USD/CHF.
The USD/CAD currency pair is the number of Canadian dollars required to purchase a single U.S. dollar. As one of the most liquid and highly-traded symbols in the forex market, this pair is influenced by Federal Reserve activity in the U.S. market and certain commodity prices in Canada—such as crude oil.
As the fourth-most-popular currency pair in the world, the AUD/USD represents how many U.S. dollars are needed to purchase a single Australian dollar. Political events, interest rates, and Australian production of commodities such as coal or copper are factors that can impact AUD/USD.
NZD/USD represents the value of the New Zealand dollar against the U.S. dollar, or how many U.S. dollars are required to buy a single New Zealand dollar, or the kiwi dollar. New Zealand’s currency is typically listed in the top 10 most popular currencies in the world, while the U.S. dollar is the most traded currency.
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Minor Currency Pairs (Also Known as Cross Pairs)
Minor currency pairs, or cross currency pairs, don’t include the U.S. dollar, which is the top traded currency across the globe. However, minor pairs do include at least one of the world’s three most-traded currencies—the British pound, the Japanese yen, and the euro.
The EUR/GBP currency pair represents how many British pounds are required to buy one euro. Because this pair includes two major European currencies, it’s one of the most popular currency pairs across the globe.
The EUR/AUD currency pair represents how many Australian dollars are required to purchase a single euro. This pair is often used as a way to gauge global risk.
The GBP/JPY currency pair represents how many Japanese yen are required to buy a single British pound. The yen is the third-most-popular currency in the world, while the British pound is the fourth-most-traded currency.
The CHF/JPY currency pair represents how many Japanese yen are required to buy a single Swiss franc. The yen is the third-most-popular currency in the world, and both of these currencies are often perceived as safe-haven currencies because of their low interest rates.
The NZD/JPY currency pair represents how many Japanese yen are required to buy a single New Zealand dollar, or kiwi dollar. The yen is the third-most-popular currency in the world, and the kiwi dollar is typically listed in the top 10 most popular currencies in the world.
The GBP/CAD currency pair represents how many Canadian dollars are required to buy a single British pound. One of the most popular traded currencies across the globe, the Canadian dollar, or “loonie,” is viewed as a commodity currency due to the country’s high number of energy exports.
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Exotic Currency Pairs
An exotic currency pair includes one of the top 10 most traded global currencies with another currency from a developing country. Exotic currency pairs are the third most popular in the modern forex market.
This pair indicates how many Hungarian forints it takes to purchase one euro. The forint only became accessible to the global market in 2021, and this pair has been volatile in recent years.
This pair indicates the value of the Polish zloty against the euro. Once considered a currency similar in value to the euro, the 2008 global financial crisis caused the zloty to lose more than one-third of its value compared to the euro, one of the world’s top currencies.
This pair indicates the value of the Turkish lira against the euro. The lira has been revalued many times in previous attempts to reduce inflation. Meanwhile, the euro represents one of Europe’s largest economies.
This pair indicates the value of the U.S. dollar against the South African rand. The U.S. dollar represents one of the strongest economies in the world, and the rand is the official currency of South Africa, Namibia, Lesotho, and Eswatini.
This pair indicates the value of the U.S. dollar against the Swedish krona. Because Sweden houses many multinational companies and tech-based businesses, the krona is typically viewed as a safe-haven currency, while the American dollar is the most-traded currency across the globe.
This pair indicates the value of the U.S. dollar against the Russian ruble. Appreciation of the U.S. dollar—the most highly traded currency worldwide—and interest rates have negatively impacted the ruble’s value in the past, but revenue from exporting oil and gas has helped increase its worth in 2022.
This pair indicates the value of the U.S. dollar against the Norwegian krone, the official currency of Norway. The krone is issued and circulated by Norges Bank, the central banking system of the Scandinavian country. The American dollar is the most highly traded currency in the world.
This pair indicates the value of the U.S. dollar against the Mexican peso. Providing marketing opportunities in Latin America, the peso is extremely liquid and one of the most highly traded worldwide currencies. In fact, it’s the third-largest currency in the Western Hemisphere behind the American and Canadian dollars.
This pair indicates the value of the U.S. dollar against the Danish krone, the currency used in Denmark, Greenland, and the Faroe Islands. The krone is considered part of the European exchange rate mechanism, which helps lower exchange rate volatility in European countries. The American dollar is one of the most highly traded global currencies.
This pair indicates the value of the U.S. dollar against the Hong Kong dollar, which is used in Hong Kong and Macau. The Hong Kong dollar is the ninth-most-traded currency across the globe and is pegged to the U.S. dollar, the most popular currency in the world.
This pair indicates the value of the U.S. dollar against the Chinese offshore yuan, which is used outside of mainland China (considered the onshore market).
This pair indicates the value of the U.S. dollar against the Singapore dollar, the official currency of Singapore. The currency is issued by the country's central banking system, the Monetary Authority of Singapore. It’s the 12th-most-traded currency globally and the most traded in Asia.
This pair indicates the value of the U.S. dollar against the Czech koruna, the currency of the Czech Republic. The currency is issued by the Czech National Bank in Prague. Although the landlocked country joined the EU in 2004, it still hasn’t implemented the euro as its official currency.
This pair indicates the value of the U.S. dollar against the Turkish lira, the national currency of Turkey. The lira has been revalued many times in previous attempts to reduce inflation and has been considered one of the least valuable currencies globally at certain times in the past. The American dollar is one of the top-traded worldwide currencies.
This pair indicates the value of the U.S. dollar against the forint, the official currency of Hungary. Issued by the Hungarian National Bank, the forint only became accessible to the global market in 2021. Like the Czech Republic, Hungary also hasn’t adopted the euro, even though it’s a member of the EU.
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How to Trade Forex Successfully Starting with One Pair
Are you new to the forex market and unsure how to dive in? A journey of a thousand miles begins with a single step, so start small with a single pair! Dealing with a single currency pair offers numerous advantages. Not only does it help trades stay focused, but it also eliminates the risk of trading correlated pairs.
Here’s how to get started:
No specific currency pair is right for everyone. When looking at different pairs, consider the following questions:
Even if you’ve previously traded stocks and assets, the forex market is a unique game that is vastly different in terms of the data traders need to analyze.
Many people enter the forex market ill-prepared and unwilling to develop the skills and attributes required to succeed. Learning how to be a successful forex trader and understanding the forex market takes time and patience. Before getting started with your pair, you should have an in-depth understanding of forex trade analysis along with any trading rules and best practices that can increase the likelihood of long-term success.
Want to dive deeper? Learn more about how the right types of indicators can help interpret market sentiment, how to understand leverage in forex trading, how to set stop-losses, how to identify and interpret relevant political or economic events, and more.
When trading a single currency pair, it’s helpful to familiarize yourself with market phase—the market’s current stage of price movement—and then plan accordingly using the right technical analysis.
The following questions can help:
Any form of technical analysis that monitors pure price action can benefit your forex trading strategy. Technical analysis can apply to any market globally, and closely watching price movements is a great way to predict price movement and identify the most likely outcome.
Learning and mastering any new skill takes significant time, hard work, and patience. Every trader’s strategy is different, and navigating the forex market successfully takes persistence and the ability to learn from one’s mistakes. Setting aside a few hours a day to learn more about currency pairs and forex trading can significantly boost your potential to earn.
Read 5 Strategies for Trading in the Forex Market.
Want to get started? Open a demo account today!
6
Which Currencies Can I Trade with Valutrades?
7
FAQs
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