FOREX market is currently the most precious of all the financial and investment markets that exist in the world. Perhaps, one of the main reasons for the success of the investment through this market is its simplicity: the investor buys a currency, let’s say the EUR, paying its value in another currency, the USD, for example, and hoping to obtain a profit from the said exchange.
So, then, every operation in FOREX is organized around a currency pair. In the case of the example we presented, it would be the EUR/USD pair. Of course, in addition to this, perhaps the most operated, there are many other possible pairs of currencies, an almost infinite combination.
In the FOREX currency market, you have the possibility to trade a huge number of pairs.
It’s irrelevant the currency you’re basing your trading account in. That’s because each change is performed automatically and with complete transparency.
When opening a position, what you’re doing is predicting the price behavior based off the strength of one coin against its pair companion.
In FOREX, you can negotiate in any direction, be it opposite or not. That makes it dissimilar to other investment instruments where you can only earn a profit if the value of your instrument increases beyond the price in which you bought it.
You can decide to “go short” and open a selling position if you believe the value will decrease. That way, you’re able to close the deal with a purchase and reap your gains.
Trading in the FOREX market mainly involves buying one currency and selling another at the same time. Thus, when trading, currencies are always quoted in pairs.
When placing an order, we are speculating as to which currency we believe will appreciate or depreciate concerning the other to obtain a benefit from fluctuations in exchange rates.
The currency on the left is what is called the base currency. The currency on the right is what is called the quote currency. The quote currency tells us what is worth concerning 1 unit of the base currency. Therefore, if we say that the EUR/USD quotes at 1.3000, this means that 1 Euro equals 1.3 Dollars.
The base currency is the basis of the purchase and sale operation. If we believe that the Euro will appreciate against the Dollar, we will buy the EUR/USD. This means that we are buying the base currency, the Euro and, at the same time, selling the quote currency, the US Dollar.
If we believe that the Euro will depreciate against the US Dollar, we will proceed to sell the pair, that is, we would sell Euros and, at the same time, we would buy US Dollars.
Buy the base currency is what in the jargon of operators is known as long trade (seek the benefit of the rise in the pair) and when we sell the base currency, is what is called operating short (seek the benefit of the lowering of torque).
What are the most popular currency pairs in FOREX in this 2018?
For beginner traders, the pairs they should be aiming for when trading are those with more liquidity and volume in trading, which are often the safest ones.
The main pairs in the current FOREX currency market are:
- EUR / USD (UE Euro vs. United States Dollar)
- GBP / USD (Pound Sterling vs. United States Dollar)
- EUR / GBP (Euro vs. Pound Sterling)
- CAD / USD (Canadian Dollar vs. United States Dollar)
As you become a more seasoned trader, these other currency pairs should prove to be highly attractive to you:
- GBP / JPY (Pound Sterling Vs. Japanese Yen)
- EUR / JPY (Euro Vs. Japanese Yen)
- EUR / CHF (Euro vs. Swiss Franc)
These are the most frequently traded pairs in the FOREX market. The main pairs usually have the lowest differential and are the most liquid. The EUR/USD is the most traded, with a daily volume of around 30% of the entire FX market.
These pairs already mentioned, specifically, EUR/USD, tend to have a lower volatility degree and consequently, involve a significantly lower risk when trading on them.
In these pairs, you will have the possibility to locate your stop-loss nearer to the entry point than with the walls that have higher volatility and therefore can have more abrupt movements. That forces you to place the stop-loss further by hoping the stop-loss with losses when, at any time, the trade could turn favorable for you.