Forex Trading and Major Currency Pairs
Forex is now the world's largest market in terms of trading volume. Forex trading is the simultaneous purchase of one currency and the sale of another, with the aim of making a profit. When you trade in the forex market, you buy and sell in currency pairs.
The 4 Majors
If you want to start trading forex, you need to have some knowledge about the main Currency pairs available for Forex trading. There are four major pairs and they are known as the 4 Majors. They are traditionally the pairs that are traded with the highest volume and are responsible for the majority of trading in the forex market.
By far the most popular major is the EUR/USD pair, with the others making up only a small percentage of the rest of the trade, USD/JPY second, then GBP/USD and USD/CHF which only makes up a small percentage.
These currency pairs all come from strong, well-established economies, and the currencies that make up the major pairs are all in the top 10 most traded currencies in the world. Trading Swiss Francs may seem a little strange, but you should know that the country is known for its stability and neutrality. Let's take a look at each pair.
EUR / USD
EUR/USD, known as the Euro Dollar is by far the most traded currency pair. When you think about how powerful the Eurozone and the United States are and their importance in global trade and the financial market, you can understand how large the volume of trades that take place in both Euros and Dollars is.
This major has the Euro as its base currency and the US Dollar as its quote currency. So you are betting on how many dollars it takes to buy one Euro. The trading volume in this major means that the market is very liquid and there are many willing buyers and sellers. This means that the spreads offered by forex brokers on transactions involving this pair are usually very tight, so the cost of trading EUR/USD can be lower when compared to other pairs. The EUR/USD pair also tends to be less volatile than other pairs, although this may not always be the case, especially when there are particular events or political announcements.
USD / JPY
The second most traded major among the 4 above is the USD/JPY pair. Although it comes right after EUR/USD, its volumes are actually a small fraction of the forex market. Japanese banking policies of keep interest rates low cause the Yen to have a low value against the US dollar, which in turn means that the pip – the very small measure of a change in the pair – is much larger than in other majors. The Japanese have a tight grip on their banking policies, which means that the Yen is seen as a safe haven.
GBP / USD
The major with the greatest volatility and the greatest risk is the GBP/USD pair, known as Cable in market parlance, due to the large transoceanic cables that connect the two financial markets. This is due to the uncertainties caused by Brexit, which have caused weakness and large movements of the British pound against the dollar and vice versa. It should also not be forgotten that the United States is pursuing a less than enthusiastic foreign policy, which causes some instability in the dollar.
USD / CHF
When you are looking for a safe haven, the one perceived as safest is Switzerland, and that is why out of the 4 majors the fourth is USD/CHF, even though its forex trading is much lower than the others. This major is colloquially known as SWISSY. Switzerland has always been known for its neutrality and safe banking environment. It is certainly the market perceived as the least risky in the financial world and is one of the areas where trades go when other pairs become too volatile.
What influences the value of these currency pairs
Whichever pair you decide to trade, it is important to remember that there are many parameters that can influence its value. For example, the value of currencies is determined by supply and demand. So some economic basics are probably a good idea, such as keeping up to date with the major economic news of a country and its financial condition, major activities and decisions. With so many traders trading the majors, prices will change rapidly. It is highly recommended that you do your research and watch the market movements.
But no matter what currency pair you choose and how well you know the market, you always run the risk of losing your investment. So trade wisely and responsibly.
Article published on November 27, 2019 - 17:21
