Learn with ForexTB: The battle of the currencies!

Author: Forex Live | Category: Education

An introductory guide to forex trading

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What is currency trading?
How do currency pairs work?
What currency pair is the most popular to trade and why?

A few of the most common questions concerning traders when it comes to currency trading!
Well, we've got all the answers, but first let's start with some simple explanations and, as we go along, we'll cover everything around the currency market.  

Forex trading (aka. Foreign exchange, duh!), is all about buying and selling currencies in pairs. All you need to know is how much the currency pair is worth. However, it's not that simple, as these currency pairs do not always deliver the desirable results to traders.

Before we dive into the trading currency pairs, let's see some of the most popular currencies out there. These are:

  1. US Dollar (USD)
  2. Euro (EURO)
  3. British Pound (GBP)
  4. Australian Dollar (AUD)
  5. Canadian Dollar (CAD)
  6. Swiss Franc (CHF)
  7. Japanese Yen (JPY)

Now, let's see how they look in pairs according to the category they fit in.
Currency pairs are divided into three categories. The "Majors", the "Crosses" and the "Exotics", each with its own characteristics.

1. The "Majors"
These currency pairs are always paired with the U.S dollar, with EUR/USD being at the top of the currency pairs table as the most traded currency pair in the market. These are:

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So why is the EUR/USD pair the most popular and traded pair ever?
Because both currencies represent two of the biggest economies in the world! Thus, trading this pair will result to having tight spreads. And YES, this is a good thing because the lower the spread is, the lower the fees you pay when you enter a trade.

2. The "Crosses"
These currency pairs do not involve the U.S Dollar.
These include and not limited to:

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3. The "Exotics" *
These currency pairs include one major currency, this being the US Dollar, and one currency from a developing market. Some examples of exotic currency pairs are:

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Something to note in this category: Exotics tend to be "trickier" in terms of price fluctuation, due to economic factors. For example: A political result or scandal in Mexico can cause the USD/MXN price to change unexpectedly! Therefore... Trade at your own risk, if you're about to trade with these pairs (well, you should always be careful when trading)!


So, as we're approaching to the end of this useful educational article, it is advised for less experienced traders, NOT TO trade with multiple currency pairs simultaneously! We recommend that you make yourself comfortable whilst trading on a demo account, as this will make you gain confidence and at the same time potentially achieve better results! Well, we can't guarantee that, but you get the gist. Once you've mastered currencies, you can slowly expand you trading abilities and start trading with new currency pairs!
Don't you agree?

This article was submitted by ForexTB.
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