Understanding the ins and outs of Forex currency pairs is as important to the currency market as is an architectural blueprint to the foundation of a building. The foreign exchange market has gained popularity in the most recent decades, and inevitably has grown both in traders and participating currencies. Learning and understanding how to approach the currency market is an ongoing process, but becomes easier with practice.
How do currency pairs work?
First, a Forex currency pair consists of two currencies in which one currency operates as the base currency while the other operates as a counter currency. The relative value between the units of currency is what is being measured by the pair. The US Dollar almost always serves as a base currency but there are also other currencies which are often used as base currencies. Other base currencies include the British Pound Sterling, the Euro and the Australian Dollar. You will often find that the base currencies are included in a Forex currency pair.
What are the major currencies?
Now, it is also important to consider that there are categories of currencies including the major currencies and the exotic currencies. The major currencies are those that are most traded in Forex currency pairs and those consist of the following: the Euro, the US Dollar, the Australian Dollar, Japanese Yen, British Pound Sterling, and the Swiss Franc. These currencies serve as part of the majors because they are of a stable value and are thus most traded in the North American session, European session and the Asia Pacific session. The major currencies are highly traded and contribute towards an escalated market liquidity.
Differences between the currencies
The characteristic of the exotic currencies that distinguished them from major currencies is the ease with which they are traded. Most exotic currencies are not as easily traded in standard brokerage accounts when compared to the ease of major currency transactions. Unsurprisingly, exotic currencies are rarely featured in Forex currency pairs. The most popular exotic currencies included in Forex currency pairs include the Thai Baht, Brazilian Real, Turkish Lira and Korean Won. It is difficult to find a broker that supports Forex currency pairs featuring exotic currencies. The alternate option is to ask for cross currency pairs instead in order to still deal with the exotic currency.
Overall, finding the Forex currency pair that best matches your trading skills requires some time and practice in the market. In addition, it is vital important to follow the latest tendencies of your pairs.