Understanding the currency pairs

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If you want to get started trading forex, the first step is to understand the different currency pairs. The value of a currency is adjusted relative to others. Learning to read the price quote is the basic skill of forex trading. Read more about forex pairs here.


The very first step when learning to trade forex is to understand the currency pairs and learn how to read them. First of all, you need to know what a currency pair is. It is the price quote of two different currencies. One of them is the base currency (transaction currency) and the other is the quote currency that will be determining the value of the base currency.

The goal of reading pairs is to know when to buy and to sell. This is of course the way to make money from trading forex. You want to buy low and sell high. So, when you buy a currency pair, you want to do it when it’s low – and then when the pair increases in value, you can sell and make a profit. If you want to know more details, you can learn about forex trading here.

Different types of pairs and pips

When traders read currency pairs, they measure the value in a unit called pip. One pip is 0.0001. So, when a currency pair rises with 0.0005, it has increased five pips. Sometimes, they can also be referring to pipette – which is five decimal places. Read all about pips here.

There are three main categories that currency pairs fall under. They are majors, crosses, and exotics. There are also other categories, but these are the three essential ones. Major currency pairs are always made from the U.S. dollar and another major economy. The U.S. dollar is the global reserve currency which means that all countries can trade with the U.S. dollar.

In general, major pairs are very attractive because they are relatively stable and very liquid. The price changes regularly, so there are plenty of opportunities to make a good profit from trading majors. Major pairs could be pairs like GBP/USD, EUR/USD, or USD/JPY.

Cross-currency pairs do not involve the U.S. dollar but are also quite popular amongst traders. They aren’t quite as frequently traded as majors. but are still relatively liquid. The last primary category is exotic currency pairs. Exotic pairs consist of the U.S. dollar and a currency from an emerging economy. These are quite risky and therefore not as popular amongst traders.

The risks of forex trading

Even though some pairs are riskier than others, forex trading is at its core a risky type of trading. This is something that every new trader needs to prepare themselves for. The more knowledge you have, the better you will be able to navigate the ever-changing landscape of forex. Therefore, it is always recommended to continue to thorough research and study the currencies and the market. You can stay updated on all the many currency pairs here.

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