Forex Pairs

Forex pairs represent the exchange rate between two currencies and are written as a pair of three-letter codes like EUR/USD, with the first currency being the base currency, and the second currency being the quote currency. A forex pair’s exchange rate will show how much of the quote currency can be purchased for one unit of the base currency. For example, if the currency pair EUR/USD is 1.5, then 1.5 US Dollars can be purchased with 1 Euro. During trading hours, as the supply and demand for one currency relative to another fluctuates, so too does the forex pair’s exchange rate.

There is no universal best forex currency pair to trade, as which forex pair is right for any given trader will depend on their trading style, risk tolerance, and knowledge of the market. Major pairs like EUR/USD or USD/JPY are the top forex currency pairs and are ideal choices for most traders, due to their high amounts of liquidity (how easy it is to buy and sell a currency) and tight spreads (the difference between the buy and sell price). Major pairs are often the best forex pairs for beginners, and are the best forex pairs by volume, and the most liquid forex pairs. For traders eager for higher returns and willing to accept a higher degree of risk, minor and exotic pairs often encounter more drastic movement.

The most traded forex pairs are often major pairs, which are forex pairs that consist of the US Dollar coupled with another globally significant currency. Examples of these would be EUR/USD, GBP/USD, and USD/CHF. Major pairs such as these experience high amounts of liquidity and tight spreads, making them an ideal choice for most traders.

There are three categories of forex pairs: major, minor, and exotic. Major pairs consist of the US Dollar together with one other globally significant currency. An example of a major forex pair is EUR/USD, which is the exchange rate between the US Dollar and the Euro. These forex pairs are the most popular forex pairs and experience the highest trading volume. Minor pairs consist of two globally significant currencies without the US Dollar. An example of a minor forex pair is EUR/GBP, which is the exchange rate between the Euro and the British Pound. These forex pairs are less popular than major pairs, but still experience significant trading and liquidity. Exotic pairs combine a major currency together with the currency of an emerging market. An example of an exotic forex pair is USD/TRY, which is the exchange rate between the US Dollar and the Turkish Lira. These forex pairs have less liquidity and are subject to more volatility. Understanding the fundamental differences between these types of forex pairs helps traders make more educated choices regarding their trading strategy.

Forex pair prices, like the prices in all free markets, are fundamentally influenced by the forces of supply and demand for the currencies they represent. Which means that for any given currency, when more people are buying than selling, the price goes up. Alternatively, when more people are selling rather than buying, the price goes down. What causes these movements in supply and demand, and therefore movements in price, comes from many factors. The key factors impacting forex prices are the actions of central banks, inflation, geopolitical events, employment data, market sentiment, and risk appetite. Staying informed of these events is key to successful currency trading. The best way to stay informed and up-to-date on these significant events is with an economic calendar.

EC Markets is a thoroughly-regulated world-class brokerage that offers ideal trading conditions for both experienced and novice traders alike. Why trade forex with EC Markets? Well, when a trader chooses EC Markets, they get access to a large selection of currency pairs, tight spreads, minimal commission, generous leverage, award-winning customer service, and free access to EC Market’s host of trading tools. Without a doubt, EC Markets is your gateway to forex trading!