If you're in the trading world, you've probably heard about the 'major' pairs. However, when you're a beginner, you don't understand all this industry's intricacies. Fortunately, this article explains what you must know about the eight pairs.
What Are Currency Pairs - Definition?
Currency pairs are in Forex (the foreign exchange market), and they measure the value of one currency against another.
The currency pairs include the 'base' currency (the first one that's named) and the 'quote' one, which is secondary. When you see the price, it shows how much of the "quote" currency you need to buy the base.
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What Is Currency Trading?
Currency trading is the process of buying and selling currencies, often through the foreign exchange market (FX), also known as Forex.
The foreign exchange market is the most liquid and largest financial market in the world and has over $5 trillion's worth of currencies that people trade.
Since trading involves simultaneously buying and selling a currency, Forex always requires you to do it in pairs.
Therefore, you can buy the pair as a single unit, for example, the US dollar and euro (EUR/USD) or the British pound and the Japanese yen (GBP/JPY).
What Are the 8 Major Currency Pairs in Forex Trading?
There are numerous Forex pairs for traders to choose from, but experts consider some specific ones to be the major players in the industry.
Major Forex pairs are the ones that people trade the most. Overall, almost all of them include the US dollar since the country holds the position of the world's largest economy. Take a look at all the options:
It is a currency that includes the US dollar and the Japanese yen. Its name is 'gopher,' and its price shows how many yen you need to buy dollars.
The gopher is one of the most popular currencies in the world and it's intrinsically linked to the price of gold. Along with other currency pairs, experts consider this to be a leading factor that drives the worldwide economy.
This currency is based on the value of the dollar compared to the Swiss franc. The price you see on the charts reflects how many francs you need to buy for one dollar.
The name for the currency is the "swissie." It has gained a lot of popularity worldwide since many people believe it's a safe haven in times of volatile economy or challenging circumstances.
Since the Swiss nation is stable and neutral, the "swissie" has gained similar fame. When there are economic difficulties worldwide, this currency tends to remain stable.
Also known as 'cable' for its mid-19th century basis, this is the currency that bases the value of the British pound compared to the US dollar.
It's one of the most popular currencies in the world, and it compares how many dollars you need to buy a British pound.
In 2022, the pound's value dropped drastically as a result of different new policies that the UK adopted. Therefore, this currency suffered changes as well.
Monetary growth, political events, and other circumstances can all affect the value of a currency, which is what happened with this one. However, the 'cable' is still quite popular among traders.
Political events and economic growth have majorly influenced the value of the US dollar against the euro since its introduction in 1999. However, this currency remains one of the most famous ones to invest in.
The currency compares how many US dollars you need to buy one euro. Recent events also caused the US dollar's value to drop against the euro, and it was the biggest change the world had seen in years.
Although it's not as popular as the previously mentioned pairs, the 'Aussie' currency is famous as well. It reflects how many dollars you need to buy one Australian dollar.
This currency represents two of the world's most famous and stable economies. Actually, that's the reason why it's a popular pair to buy. The prices of the Aussie are often related to the gold's value, which makes them constantly drop or rise.
Also known as the 'kiwi,' this currency reflects how many US dollars you need to buy one New Zealand dollar.
This pair is intrinsically related to the price of other commodities, for example, silver and coal. In addition, dairy prices affect it as well since New Zealand is one of the world's top dairy exporters.
The last currency on this list compares how many Canadian dollars you need to buy a British pound.
Canada is one of the most stable countries in the world. Therefore, although the UK's economy has suffered changes, this is still a popular currency that many traders consider.
Commodity Currencies
The article briefly mentioned it before, but there are specific currencies that commodity prices heavily influence.
Some of the most famous commodity currencies are the AUD/USD, the USD/CAD, and the NZD/USD.
Cross Currencies
These currencies are the ones that don't include the US dollar. Sometimes, traders don't consider these to be profitable.
However, many cross-currencies are still popular, such as the GBP/EUR, the EUR/CHF, and the EUR/JPY.
How Currency Pairs Work
Currency pairs work by comparing the price of one currency to the other one's. Therefore, they allow you to understand how much both of them are worth.
Traders buy currency pairs in one unit. In other words, when you acquire one, you're relying on those two currencies to secure your position and get the outcome you want.
What Affects the Price of Forex Pairs?
Different factors can affect a Forex pair's value, including economic changes in a country, war, or the price of different commodities.
Since so many factors impact the value of FX pairs, it's difficult to pick one to invest in unless you're willing to risk something. Thus, you have to carefully examine the charts before making your move.
Conclusion
The eight major pairs are the most popular among traders, but there are many other options if you're unsure of which is the right one to invest in. Now that you understand how pairs work, you must use the knowledge to your favor and make better investment choices!
