Types of currency pairs
Currencies are being traded on the Forex Spot market in pairs. Currency pairs can be various. For instance, GBPUSD, USDJPY, GBPJPY etc. The first currency in pair is called base, for example, in GBPUSD pair, GBP-is base currency. The second currency in this pair is called quoted currency – USD. Number, which you see near the BUY and SELL buttons on the chart of Your desired instrument in Your trading platform(For example, 1.5555) is called the price of the currency. In other words, price – is the number of units of quoted currency You need in order to buy one unit of base currency. It is worth mentioning that there are usually two numbers near the BUY and SELL buttons, so there are two prices, one is the price the broker wants to buy that particular instrument for, the other is the price at which the broker wishes to sell that particular instrument for. The difference between them is called spread. Spread is an important concept to understand before starting trading forex. Read more on Spreads.
Currency pairs are divided into 3 types:
1. Major currency pairs
2. Major Cross-currency pairs (minor currency pairs)
3. Exotic currency pairs
5.1 Major currency pairs are all currency pairs which are traded in pair with USD.
AUDUSD, EURUSD, GBPUSD, NZDUSD, USDCAD, USDCHF, USDJPY.
5.2. Major cross-currency pairs:
Here are currency pairs which are not traded in pair with USD. The most popular cross currency pairs are those which instead of USD are traded with EUR, GBP, JPY.
EURAUD, EURCAD, EURCHF, EURGBP, EURNZD; GBPAUD, GBPCAD, GBPCHF, GBPNZD; AUDJPY, CADJPY, CHFJPY, EURJPY, GBPJPY, NZDJPY; AUDCAD, AUDCHF, AUDNZD, CADCHF, NZDCAD, NZDCHF.
5.3. Exotic currency pairs:
Exotic currency pair consists of the currency from the country with shaky economy and USD. Some brokers even have exotic cross currency pairs, where exotic currency is traded in pair with EUR, GBP, JPY.
USDDKK, USDHKD, USDMXN, USDNOK, USDSEK, USDSGD, USDTHB, USDZAR.
PIPS AND THEIR VALUE
No one can engage in forex trading without understanding what pips are and how to calculate the value of a pip. The pip is the 4th digit after the decimal point in the exchange rate, it is the smallest figure in the number showing how much of the quoted currency you must pay in order to buy 1 unit of the base currency.
For most forex currencies the pip will be the fourth digit after the decimal point, an exception to this rule is the Japanese Yen, this currency’s pip is the second digit after the decimal point.
For instance, if you plan to trade dollars for Euros the exchange rate may be EURUSD 1.0181(2), this means you must pay 1.0181(2) U.S dollars to buy one Euro.