Few people play new online games without understanding how they work, right? However, most traders often forget to acquaint themselves with currency pairs they wish to buy or sell in the forex market. While trading currency is of course different from playing an online game, the concept of gaining knowledge is similar as traders need to know how trading works.

Anatomy of Currency Pairs

Before getting into essentials, it’s sensible that everyone understands currency pairs in forex and how they move. Every currency pair contains two currencies where one currency’s value is compared against the other one. The first currency in the pair is the base currency, while the second one is the quote currency.

The Aspect of Buying and Selling Currencies

An area that confuses forex traders most, especially beginners, is how to buy and sell currencies. Concerning the stock market, one can easily buy or sell stock shares because there is no pairing and a stock’s value is independent. However, the case is different for the forex market due to currency pairing. Merely put, whenever traders initiate a trade, they are concurrently buying and selling the pair. For instance, when buying the EUR/USD (also known as going short), a trader buys the USD and sells the Euro concurrently. Equally, if buying the EUR/USD (also known as going long), one sells the US dollar and buys the Euro simultaneously. Traders need to know whether to go short or long.

A Simple Rule for Reading Pairs

As said earlier, currency values are relative, which means traders open and close positions in pairs. The base currency is the one that regulates how one initiates an order. For example, in EUR/USD, one should always opt to buy or sell the base currency (EUR) against the quote currency (USD).

Majors Major forex pairs list is the currency pairings that most professionals and beginners like because they have low spreads, a wide range of movements, and high liquidity. A major currency is more stable than a minor currency. The major currency pairs include EUR/USD, GBP/USD, USD/JPY, USD/CHF, EUR/JPY, and USD/CAD.
Crosses The crosses are pairs with minimal profit potential compared with the majors and lack the USD. High exposure of the US dollar can make one’s trades move in the same direction, which can be a massive problem if it’s against the profiting direction. The best cross pairs include GPB/JPY, AUD/CAD, EUR/GPB, EUR/AUD, CAD/JPY, and NZD/JPY. GBP/AUD and EUR/CAD are the most highly traded crosses because they offer traders security whenever the United States Dollar’s direction is uncertain.
Exotics Exotics are expensive to buy and sell, and few traders speculate on these. All in all, nothing should forbid traders from adding the exotics to their portfolios. The leading exotics include USD/TRY, USD/MXN, EUR/TRY, USD/SGD, USD/ZAR, and EUR/SEK.

Important Forex Terms to Remember

Before initiating a trade in forex, it’s recommended to understand the commonly used terms, such as:

Bid It is the price at which the broker or market buys a currency from a trader. When selling currencies, traders receive the bid price.
Ask The price at which the broker or market plans to sell a trader a currency. One pays the ask price after buying currencies.
Spread It’s the difference between the bid price and the ask price. Online brokerage firms consider spread as a commission they receive for helping traders execute trades.
Pip It’s the minimum measurable movement made by a currency.
Leverage It’s similar to a loan that an FX broker offers traders, so they have much more capital for placing trades.

How Currency Pairing Works

“Trading currency pairs list in FX is the most liquid and largest market in the financial world”, says Investopedia.

This market allows traders to buy, sell, exchange, or even speculate currencies. It also facilitates currency conversion for international investment and trade. The forex market sees a massive trading volume because it’s open 24 hours a day and five days a week. The EUR/USD is a widely traded currency pairing. An excellent example of a currency price is EUR/USD = 1.1720/1.17202 (selling/ buying rate). In this case, the EUR is the base currency while the USD is the quote currency. A trader has to pay 1.1722 of the quote currency to buy a single unit of the base currency. On the other hand, if selling the EUR, one receives 1.1720 US dollars. Traders can buy the EUR/USD pair if the conditions favour the Euro to increase its value against the dollar. Alternatively, traders can sell this pair if the conditions indicate that the Euro’s value will decrease against the dollar. The good news is that one can use CFDs and spread bets to short-sell currencies.

Top 6 Most Tradable Currency Pairs

After getting valuable information about currencies, it’s time to find out the best pairs that can consider trading in forex according to the source.

USD/EUR This pairing is among the most traded currency worldwide. Major political announcements that influence either the Euro or the dollar affects how its price moves. For example, if the European Central Bank interferes to strengthen the Euro, traders could expect the dollar’s value to potentially decrease. NFP news announcement also affects this pairing.
USD/JPY JPY (Japanese Yen) is held as a reserve currency behind the United States dollar, the Euro, and the UK’s GBP. Although JPY faces several movements throughout the day, Japan’s central banks buy and sells the currency often to ensure the exchange fees are under control. Usually, the Japanese government wants the Yen to have a low value to exploit their competitive exports.
USD/CAD Commodity prices heavily determine CAD’s value. Essentially, oil price plays a crucial role in determining the Canadian dollar’s value as the country depends on oil exportation. So, when trading USD/CAD, it would be helpful to check the oil price.
GBP/USD When it comes to ranking the top traded currencies, only USD and EUR rank higher than the GBP. The effects of the Great Recession, as well as Brexit, have made GBP price change fast in recent years.
USD/CHF Traders who invest in this pair want to secure their assets during turmoil. CHF, to be precise, is regarded as a ‘safe-haven’ currency because it behaves like a hedge. Simply put, it means that CHF could be expected to bounce when other currencies start to depreciate their value during volatility, and vice versa.
AUD/USD The Australian dollar (AUD) is Australia’s official currency. AUD’s value goes hand in hand with CAD’s, mainly due to the interdependent relationship between the two countries economies. Also, AUD’s value relies on the commodity market because the country exports considerable amounts of iron and coal.

Why Invest in major Currency Pairs

They have liquid markets where trading takes place 24 hours a day on all business days.
Major currencies have tight spreads, which lowers the expenses, and thus increases the potential profit margin percentage.
Availability of high volumes due to the high number of buyers and sellers.