Different Kinds of Currency Pairs
Forex trading is practically trading money in exchange of money to gain money. If that sounds a little complicated, forex trading is the trading of different kinds of money called currencies.
The Forex Live Account forex market works 24 hours a day, 5 days a week. Money never sleeps, indeed. This is because money circulates around the world and it doesn’t stop moving. It’s always on the go.
Now, if you want to successfully trade in the forex market, you have to learn HQBroker Review much about its most basic components, which are currencies and currency pairs.
You already know what a currency is, so let’s start the discussion by talking about currency pairs.
What are currency pairs?
When you are trading currencies in the forex market, you do not work with only one kind of currency. You have to exchange one currency for another, exposing you to two different kinds of currencies. And these two currencies make up what is called the currency pair.
The currency pair is the quotation of your traded currencies. By looking at the values of the currencies in a currency pair, you can know the value of one currency relative to the value of another.
In a currency pair, the values are shown as rates. And in the two currency symbols you see, the first currency is called the base currency and the second currency is called the quote currency.
The pair will tell you how much of the quote currency is needed to buy or equal one unit of the base currency.
Effectively, when you trade currencies, you are buying and selling two currencies at the same time. Lastly, bear in mind that there are as many currency pairs in the world as there are currencies.
Further, there are primarily three types of currency pairs in the whole forex market, which are the major currency pairs, minor currency pairs, and the exotic currency pairs.
We’re going to tackle these three kinds of currency pairs.
Major Currency Pairs
Simply put, the major currency pairs are those that have the US dollar, or USD, on the side. These currency pairs are the most frequently traded and all of them have extremely liquid markets. They are traded for 24 hours in one business day, while also sporting narrow spreads.
The major currency pairs include:
Minor Currency Pairs
The minor currency pairs are those that do not include the US dollar in the quote or base currency. These are also known as cross-currency pair, and are not as liquid or popular as the major currencies.
The minor currency pairs include:
Exotic Currency Pairs
When we say that the currency pair is exotic, we’re talking about the combination of a major currency and the currency of a developing economy like South Africa or Brazil. These currency pairs are not found as often in the market as the major and minor currency pairs. This means that the spreads are higher when you trade them. They also have very low liquidity.
The exotic currency pairs include: