What is a currency pair?
What is a currency pair?
Users who are active in the investment and financial markets must be familiar with the term currency pair. Currency Pair is one of the most important concepts in the world of trading and investing in the Forex market, digital currency market etc. In this article, Zand Trader brings you what you need to know about currency pairs. Please follow us.
Familiarity with the concept of currency pairs
A currency pair is two different currencies, one of which is traded against the other. The first currency mentioned in a currency pair is called the base, main or base currency, and the second currency is called the secondary currency or quote currency.
Structure of a currency pair
As you know, currency pairs are displayed as EUR / USD, which is the euro against the US dollar. In fact, currency pairs are compared to determine how much of the secondary currency is needed to buy a unit of base currency. A three-letter symbol associated with it is used to identify each currency. The Canadian dollar, for example, is known as “CAD” in international markets.
Familiarity with primary and secondary or quote currency.
In the foreign exchange market, the unit price of a currency is known as the currency pair. The base currency, the base or main, is the first currency in each currency pair, and the second part of the currency pair is related to the secondary currency. Currency pairs are often presented in 6-letter slash: AAA / BBB. In this case, AAA is the base currency, while BBB is the currency of the quote.
Currency Pair Trading
Currency trading is often done in the foreign exchange market. For example, in the Forex market it is possible to trade and exchange currencies for international trade and investment.
In the Forex market, currency pairs are constantly traded. When buying a currency pair, investors buy the base currency and sell the quote currency. The bid price represents the amount of currency offered to receive a base currency unit.
On the other hand, when a currency pair is sold, the investor sells the base currency and receives the secondary currency. Thus, the selling price of a currency pair is the amount that a person receives to provide a base currency in the proposed currency; and generally, when trading a currency, investors sell one currency to buy another.
Factors affecting currency pair
Several factors affect the price of currency pairs, including:
-Federal Reserve measures
-Economic announcements and news
Types of currency pairs
In general, currency pairs are divided into three categories. These three categories are:
-Major currency pairs
-Minor currency pairs
-Exotic currency pairs
In the following, we will briefly explain each type of currency pair. Please stay with us.
Major currency pairs
The most popular and attractive currency pairs in the international financial markets are the major currency pairs. These types of currency pairs account for the largest volume of transactions. Some of the most important currency pairs are:
-EUR / USD: Euro / US Dollar
-GBP / USD: British Pound / US Dollar
-USD / JPY: US Dollar / Japanese Yen
-USD / CHF: US Dollar / Swiss Franc
-USD / CAD: US Dollar / Canadian Dollar
-AUD / USD: Australian Dollar / US Dollar
-NZD / USD: New Zealand Dollar / US Dollar
Minor currency pairs
Another type of currency pair is the Minor pair. Generally, when there is no US dollar on one side of the currency pair, that currency pair is called a small currency pair. Some examples of small currency pairs are:
-EUR / GBP: Euro / British Pound
-EUR / CHF: Euro / Swiss Franc
-EUR / AUD: Euro / Australian Dollar
-EUR / CAD: Euro / Canadian Dollar
Exotic currency pairs
Market pairs of emerging or emerging economies that are paired with a major currency are called Exotic pairs. An example is USD / SGD. These currency pairs actually have less liquidity and are associated with wider spreads. Therefore, they are associated with a higher risk.
Concluding remarks on currency pairs
Currency Pair consists of two basic currencies and a secondary currency. In fact, the two currencies are traded against each other. That is, one currency is bought or sold at a price higher than the other.
In this article, we introduced you the different types of currency pairs.
We hope that what has been said has been able to add to your useful information in the field of trading.