Investor's wiki
en English
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy

Currency Pair

Currency Pair
TradingStrategy and EducationForex and Currencies TradingForex Trading Strategy and Education

What Is a Currency Pair?

A currency pair is the quotation of two distinct currencies, with the value of one currency being quoted against the other. The primary listed currency of a currency pair is called the base currency, and the subsequent currency is called the quote currency.

Currency pairs compare the value of one currency to another — the base currency (or the first) versus the second or the quote currency. It shows the amount of the quote currency is expected to purchase one unit of the base currency. Currencies are distinguished by a ISO currency code, or the three-letter alphabetic code they are associated with on the international market. Thus, for the U.S. dollar, the ISO code would be USD.

Understanding Currency Pairs

Trading currency pairs is directed in the foreign exchange market, otherwise called the forex market. It is the biggest and most liquid market in the financial world. This market takes into consideration the buying, selling, trading, and speculation of currencies. It likewise empowers the conversion of currencies for international trade and investment. The forex market is open 24 hours every day, five days per week (counting most occasions), and sees a colossal amount of trading volume.

All forex trades include the simultaneous purchase of one currency and sale of another, yet the currency pair itself can be considered a single unit — an instrument that is bought or sold. At the point when you buy a currency pair from a forex broker, you buy the base currency and sell the quote currency. On the other hand, when you sell the currency pair, you sell the base currency and receive the quote currency.

Currency pairs are quoted based on their bid (buy) and ask prices (sell). The bid price is the price that the forex broker will buy the base currency from you in exchange for the quote or counter currency. The ask — additionally called the deal — is the price that the broker will sell you the base currency in exchange for the quote or counter currency.

While trading currencies, you're selling one currency to buy another. On the other hand, while trading commodities or stocks, you're utilizing cash to buy a unit of that commodity or a number of shares of a specific stock. Economic data connecting with currency pairs, for example, interest rates and economic growth or gross domestic product (GDP), influence the prices of a trading pair.

Major Currency Pairs

A widely traded currency pair is the euro against the U.S. dollar or displayed as EUR/USD. Truth be told, it is the most liquid currency pair in the world since it is the most vigorously traded. The quotation EUR/USD = 1.2500 means that one euro is exchanged for 1.2500 U.S. dollars. In this case, EUR is the base currency and USD is the quote currency (counter currency). This means that 1 euro can be exchanged for 1.25 U.S. dollars. One more perspective on is that it will cost you $125 to buy 100 euros.

There are as numerous currency pairs as there are currencies in the world. The total number of currency pairs that exist changes as currencies go back and forth. All currency pairs are ordered by the volume that is traded consistently for a pair.

The currencies that trade the most volume against the U.S. dollar are alluded to as the major currencies, which include:

  • EUR/USD or the Euro versus the U.S. dollar
  • USD/JPY or dollar versus the Japenese yen
  • GBP/USD or the British pound versus the dollar
  • USD/CHF or the Swiss franc versus the dollar
  • AUD/USD or the Australian dollar versus the U.S. dollar
  • USD/CAD or the Canadian dollar versus the U.S. dollar

The last two currency pairs are known as commodity currencies in light of the fact that both Canada and Australia are wealthy in commodities and the two countries are impacted by their prices. The major currency pairs will quite often have the most liquid markets and trade 24 hours per day Monday through Thursday. The currency markets open on Sunday night and close on Friday at 5 p.m. U.S. Eastern time.

Minors and Exotic Pairs

Currency pairs that are not associated with the U.S. dollar are alluded to as minor currencies or crosses. These pairs have somewhat more extensive spreads and are not so liquid as the majors, but rather they are adequately liquid markets regardless. The crosses that trade the most volume are among the currency pairs in which the individual currencies are likewise majors. A few instances of crosses incorporate the EUR/GBP, GBP/JPY, and EUR/CHF.

Exotic currency pairs incorporate currencies of emerging markets. These pairs are not as liquid, and the spreads are a lot more extensive. An illustration of an exotic currency pair is the USD/SGD (U.S. dollar/Singapore dollar).

Features

  • At the point when an order is set for a currency pair, the primary listed currency or base currency is bought while the second listed currency in a currency pair or quote currency is sold.
  • A currency pair is a price quote of the exchange rate for two distinct currencies traded in FX markets.
  • The EUR/USD currency pair is viewed as the most liquid currency pair in the world. The USD/JPY is the second most well known currency pair in the world.