Forex pairs are always involved in currency trading. The pair is the two currencies involved in your trade. For example if you are exchanging US dollars for Swiss francs, the currency pair is USD/CHF.
In practice most foreign exchange trading is limited to the currencies of the larger finanical powers though theoretically, you could trade any two currencies of the world. This does not necessarily mean the most politically powerful or biggest countries. For example, Switzerland is only a small country but is a major player in the financial markets because of the global importance of the Swiss banks.
There are 6 major forex pairs which between them account for 90% of the funds traded on the forex markets. These are:
- USD/EUR: the US dollar and the euro
- USD/GPD: the US dollar and the British pound, because it used to be synchronized on both sides of the Atlantic by a cable running under the ocean is nicknamed Cable.
- USD/JPY: the US dollar and Japanese yen.
- USD/CHF: the US dollar and Swiss franc.
the Australian dollar and US dollar: AUD/USD
- USD/CAD: the US dollar and Canadian dollar.
It is best to stick with the major forex pairs in the beginning. But traders do get involved in other combinations of these major currencies that include other countries such as the New Zealand dollar.
The most significant single currency is the US dollar and according to a 2007 study, is involved in 85% of trades. The euro is second at 37%. Next come the yen, pound, Swiss franc, AUD and CAD in that order. These add up to more than 100% because there are always two currencies in every trade. In case you were wondering.
What Is The Best Currency Pair When You’re Just Starting?
Most experts advise beginning with the USD/EUR pair when you are just starting out in forex. Your costs will be lower because there is a lot of information about these currencies and the high liquidity results in a smaller spread.
Some of the other currencies have particular characteristics which make most newbies avoid them unless they have special knowledge. For example the value of the Canadian dollar is strongly influenced by the price of oil because Canada is an oil exporter. The Japanese yen can also be affected by the price of oil in the opposite direction because Japan is a large consumer and importer of oil.
When you are starting out you will not want to get involved in a lot of different currencies. For the first few months at least, probably the best thing to do is to take the EUR/USD market and stay with that. The second choice of the major forex pairs would be the GBP/USD for most new traders.
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