Understanding Currency Pairs

8/7/2019 Understanding Currency Pairs

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UNDERSTANDING

CURRENCY

PAIRS

Chapter 3:

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UNDERSTANDING CURRENCY PAIRS Forex is all about pairing different currencies read on to learn what that means.

You probably already know that the Forex market is

the biggest trading market in the world ; bigger

than all the rest combined, in fact. But, do you know

which currencies are the most commonly traded pairs?

To understand pairs trading you need to know three key

groups: majors, crosses, and exotics. Major currency

pairs consist of currencies compared with the U.S. dollar.

They are as follows:

Pair Description Slang terms

GBP/USD British pound vs. the U.S. dollar Sterling, Cable

EUR/USD Euro vs. the U.S. dollar Anti-dollar

AUD/USD Australian dollar vs. the U.S. dollar Aussie

NZD/USD New Zealand dollar vs. the U.S. dollar Kiwi

USD/JPY U.S. dollar vs. the Japanese yen Yen

USD/CAD U.S. dollar vs. the Canadian dollar Loonie

USD/CHF U.S. dollar vs. the Swiss franc Swissie





The second group is made up of currency crosses, which are pairs that don’t involve the U.S. dollar. Here are some

examples:

Pair Description

EUR/CHF Euro vs. the Swiss franc

EUR/JPY Euro vs. the Japanese yen

EUR/CAD Euro vs. the Canadian dollar

EUR/AUD Euro vs. the Australian dollar

EUR/NZD Euro vs. the New Zealand dollar

EUR/GBP Euro vs. the British pound

GBP/JPY British pound vs. the Japanese yen

GBP/AUD British pound vs. the Australian dollar

GBP/CHF British pound vs. the Swiss franc

CAD/JPY Canadian dollar vs. the Japanese yen

NZD/JPY New Zealand dollar vs. the Japanese yen

CHF/JPY Swiss franc vs. the Japanese yen

AUD/CAD Australian dollar vs. the Canadian dollar

AUD/NZD Aussie dollar vs. the New Zealand dollar

AUD/JPY Australian dollar vs. the Japanese yen

AUD/CHF Australian dollar vs. the Swiss franc





Third, we have what are known as exotics. These pairs consist of at least one emerging economy’s currency. Here are a

handful of examples of such pairings:

Pair Description

USD/MXN U.S. dollar vs. the Mexican peso

USD/SGD U.S. dollar vs. the Singapore dollar

USD/TRY U.S. dollar vs. the Turkish lira

EUR/TRY Euro vs. the Turkish lira

USD/ZAR U.S. dollar vs. the South African rand

Because of the complicated nature of exotics, it’s not

recommended that beginners start off in the exotics

Forex market. It would be better to establish oneself with

more quickly grasped majors and crosses beforehand.

OK, so we now understand that there are different types

of pairs, but when do they trade?

In general, the U.S. market opens around 8:00 a.m. (all

times in EST) and ends at 5:00 p.m. Europe opens at

3:00 a.m. and closes at about 11:00 a.m., and the Asian

market runs from 5:00 p.m. to 4:00 a.m. Also of note is

the fact that the trading week begins on Sunday evening

at 5:00 p.m. and ends on Friday at 4:00 p.m. The market

trades 24 hours a day during those times, however, and is

closed for retail trading between Friday night and Sunday

afternoon.





The European market has the most volume and is the

most volatile. The American market is next in terms of

both categories, and the Asian market has the lowest

volume and volatility. The American and European

markets see more intra-day trends and the

Asian market often sees more longer-term

ranges form. Of course, that’s all just a general idea of

the market, and not written in stone.

If you’re looking for the highest possible volume then

trade pairs during their banking hours. That means that if

you want to trade with high volatility in the AUD/JPY

pair, operate during the Asian session, and vice-versa for

the EUR/USD pairing.

An interesting note before we end here: the

EUR/USD pair is the most commonly traded and

has the highest volume, about 27 percent of all

Forex trading. Second is the USD/JPY pair at 13percent, and third is the GBP/USD pair at about

12 percent of total Forex volume.





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