What Are Currency Pairs?
Forex trading is the exchange of one currency for another. Currencies are traded in pairs, such as EUR/USD or USD/JPY. The first currency in the pair is the base currency, and the second is the quote currency. When you buy a currency pair, you're buying the base currency and selling the quote currency.
Major, Minor & Exotic Pairs
Major currency pairs include the most traded currencies globally and always include the USD. Examples: EUR/USD, GBP/USD, USD/JPY.
Minor pairs exclude the USD but include other major economies like EUR/GBP or AUD/JPY.
Exotic pairs involve a major currency paired with a currency from a developing economy, such as USD/TRY or EUR/THB.
How to Read Forex Quotes
A forex quote shows the price at which you can buy or sell a currency pair. For example, if EUR/USD = 1.1000, it means 1 Euro is equal to 1.10 US dollars. The first price is the bid (sell price), and the second is the ask (buy price). The difference is called the spread.
Currency Volatility & Liquidity
Major currency pairs tend to have higher liquidity and lower spreads. Exotic pairs can be more volatile and have higher spreads. Understanding volatility is crucial for risk management and planning trade entries and exits.
Popular Currency Trading Strategies
- Scalping: Short-term trades aiming for small profits from small price movements.
- Swing Trading: Holding positions for days or weeks to capitalize on market trends.
- Trend Following: Entering trades in the direction of the prevailing market trend.