Currencies are traded in pairs
Forex trading is the simultaneous purchase of one currency and the sale of another. Currencies are traded through a broker or dealer and sold in pairs; for example, the euro and the US dollar (EUR / USD) or the British pound and the Japanese new (GBP / JPY).
When trading in the Forex market, you are buying or selling with currency pairs.
Imagine that all pairs are constantly “fighting” with each currency on their side of the rope. Exchange rates fluctuate depending on which currency is currently stronger.
Major Currency Pairs
The following currency pairs are known as “major”. All of these pairs contain the US dollar (USD) on one side and are the best-selling pairs. Trunks are the most liquid and best-selling currency pairs in the world: EUR / USD, USD / JPY, GBP / USD, USD / CHF, USD / CAD, AUD / USD and NZD / USD.
Major currency pairs or minor currency pairs
Currency pairs that do not include the US dollar (USD) are known as cross-currency pairs or simply “crosses”. Large crosses are also known as “minors”. The most actively traded crosses contain three major non-USD currencies: EUR, JPY and GBP.
Some of the Euro Crosses are: EUR / CHF, EUR / GBP, EUR / CAD, EUR / AUD and EUR / NZD.
The following are considered Yen crosses because they use the Japanese yen on the one hand: EUR / JPY, GBP / JPY, CHF / JPY, CAD / JPY, AUD / JPY and NZD / JPY.
Like Europe, the UK has its own crosses: GBP / CHF, GBP / AUD, GBP / CAD and GBP / NZD.
And here are some other currency pairs that are considered small: AUD / CHF, AUD / CAD, AUD / NZD, CAD / CHF, NZD / CHF and NZD / CAD.
Exotic pairs are a major currency associated with the currencies of emerging economies such as Brazil, Mexico or Hungary. Some examples of exotic currency pairs: USD / HKD, USD / SGD, USD / ZAR, USD / THB, USD / MXN, USD / DKK, USD / SEK and USD / NOK.
It is not uncommon for spreads to be two or three times larger than EUR / USD or USD / JPY. Therefore, if you want to trade exotic pairs, do not forget to take this into account in your decision.
Because the foreign exchange market is so unusual, traders have found several different ways to invest in currencies. The most common of these are the forex spot market, futures, options and stock exchanges (or ETFs).
In the spot market, currencies are traded immediately or “on the spot” using the current market price. The most amazing feature of this market is its small spread and 24-hour operations. It is very easy to participate in this market, because accounts can be opened with an investment of up to $ 25! And most brokers usually provide charts, news and other information for free.
Futures are contracts for the purchase or sale of a particular asset for a specified fee on a future date. That is why they are called futures! Forex futures were developed a long time ago in 1972 by the Chicago Board of Trade (CME). Because futures contracts have certain standards and are traded through a centralized exchange, the market is extremely transparent and well regulated. This means that price and transaction details can be easily obtained.
An option is a financial instrument that gives the buyer an opportunity or option, not an obligation to buy or sell an investment at a price determined at the expiration date of the option. If the trader “sells” the option, then he will be happy to order or sell the asset for a certain payment on the date of completion.
Like futures, options are traded on the Chicago Board Options Exchange, the International Stock Exchange, or the Philadelphia Stock Exchange. However, the disadvantage of forex options trading is that market hours are limited for certain options and liquidity is not as large as the futures or spot market.
Funds traded on the stock exchange
Stock exchanges or ETFs are the newest members of the foreign exchange market. The ETF may have a number of shares along with some currencies, which allows the trader to diversify with other assets. They are produced by financial institutions and can be traded on the stock exchange as shares. Like Forex options, the limitation of trading ETFs is that the market is not accessible at all hours. Also, because ETFs have shares, they are subject to trade commissions and additional transaction fees.