Types of currency pairs
A Wealth of Knowledge
In the Forex Market, Currencies are quoted in pairs. Meaning you have to compare something against something which serves as means of buying and selling. Now when one is buying a certain currency pair, they are simultaneously buying and selling on that transaction. Much like any foreign exchange transaction. Say, for example, one is a tourist and visiting another country. the first thing they ought to do before participating in the economy is exchanging their currency to the one of a country they are visiting. Now, in that exchange, they will be simultaneously buying and selling a currency. Meaning selling your country's currency in exchange to that of the country that one is is visiting. This exactly what happens in the Forex market. when one is buying EUR/USD they are simply buying EUR and selling USD simultaneously and vice versa.
Currencies are categorized into three categories, there are Major currencies, Cross currencies/Minor currencies, and lastly exotic currency pairs.
Major Currencies are composed of strong, first world economies, against one another. Mostly Major currency pairs will be pairs that have USD in them either as a base currency or quote currency. Major currencies are composed of first world economies against one another. Furthermore, the pair will have USD in them. For example EUR/USD, GBP/USD, USD/CHF, NZD/USD, USD/JPY etc. These are all classified as major currency pairs and tend to cost less to trade. They tend to have lower spread and lower swap charges. below is a table containing all major currency pairs.
|USD||United States of America||Dollar, Buck,|
|GBP||Great Britain||Pound, Sterling|
|EUR||Euro zone countries||Euro|
Cross currencies/Minor currencies
All these currencies compared to the dollar they form what is called a major pair. Now, this is slightly different when one is trading a cross currency. These types of currencies usually consist of well-established economies but without the dollar in them. For instance, EUR/GBP, GBP/JPY, EUR/CAD, See how we are comparing well-developed economies, however, the fact that they do not encompass the dollar in them they are not classified as major currencies, but rather cross currencies, or minor currencies. The dollar is king as some people would say, it serves as means of exchange. It is a world currency, all commodities are priced in dollars, Gold, Oil, etc.
Furthermore, one should also take note that the most active crosses are derived from non-dollar majors such as Yen, GBP, EUR etc.
below is a table of but a few cross currencies or minor currencies, that exist in the markets as there are too many.
|GBP/JPY||Great Britain Pound/Japanese Yen|
|EUR/GBP||Euro/Great Britain pound|
|CAD/JPY||Canadian Dollar/Japanese Yen|
|AUD/JPY||Australian Dollar/Japanese Yen|
Lastly, there are exotic Pairs. Now Exotic pairs encompass major currencies compared to emerging economies, or also referred to as third world country's economies. Now in this pair. one is comparing a well-established economy to an emerging market or a strong but not so big of an economy from a global perspective. For instance USD/ZAR. One is comparing United States economy to that of South Africa, or better yet a first world country to a third world country. A well-developed country to a yet developing economy.
Contained in the table below is an example of exotic pairs:
|USD/ZAR||US Dollar/South African Rand|
|USD/MXN||US Dollar/Mexican peso|
|USD/SEK||US Dollar/Swedish Krone|
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