Trading in forex means simultaneously buying one currency and selling another currency on a barter basis. Currencies are traded through the broker in pairs, for example, Euro and US Dollar (EUR/USD) or British Pound and Japanese Yen (GBP/JPY).
When you trade in the forex market, you will buy and sell currencies in pairs. Imagine that both currencies are constantly competing with the other currency on the other side of the rope. The exchange rate fluctuates based on which currency is currently stronger.
The purpose of trading in forex is to convert one currency into another with the expectation that its price will change. That is, it is assumed that the price of the purchased currency will increase compared to the sold currency.
In this article we will learn:
- What is the base currency? What is mutual currency?
- Major currency pairs
- What are non-main or cross currency pairs?
- Is it possible to trade anything other than currency pairs in forex?
What is the base currency? What is mutual currency?
Currency conversion rate is the ratio of the value of one currency to another currency. For example, the USDCHF exchange rate shows how many US dollars can buy 1 Swiss franc, or how many Swiss francs it takes to buy 1 US dollar.
Currencies in Forex are always displayed in pairs, such as (GBP/USD) and (USD/JPY).
Because in each transaction, one currency is bought and another currency is sold at the same time. Here is an example of the exchange rate for the British pound against the US dollar:
When buying, the conversion rate shows how many units of the opposite currency you have to pay to buy one unit of the base currency.
For the example above, you would pay US$1.21228 to buy one British pound.
When selling, the conversion rate states how many units of the opposite currency you should receive for selling one unit of the base currency.
In the example above, you should receive US$1.51258 when you sell one British pound.
Currency is the basis of buying and selling. If you intend to buy the currency pair (EUR/USD), it means that you are buying the base currency and selling the opposite currency at the same time.
Simply put, you bought euros and sold dollars. If you think the base currency will increase in value against the counter currency, you can buy that currency pair and if you think the base currency will decrease in value against the counter currency, you can sell that currency pair.
Major currency pairs
The following currency pairs are the main currency pairs. One of the constituent currencies of these currency pairs is the American dollar (USD), which is the most traded currency.
The main currency pairs are the most liquid currency pairs and have the largest trading volume in the world.
| Symbol | Countries | Name in Forex |
|---|---|---|
| EURUSD | European Union / US | Euro Dollar |
| USDJPY | US / Japan | Dollar Yen |
| GBPUSD | UK / US | Pound Dollar |
| USDCHF | US / Switzerland | Swiss Dollar |
| USDCAD | US / Canada | Loonie Dollar |
| AUDUSD | Australia / US | Oz Dollar |
| NZDUSD | New Zealand / US | Kiwi dollar |
What are non-main or cross currency pairs?
Currency pairs in which none of the two constituent currencies is the US dollar (USD) are called non-main currency pairs or so-called crosses.
Main crosses also called minors. The most actively traded crosses are the result of trades in three major currencies other than USD: JPY, EUR, and GBP.
Euro crosses
| Symbol | Countries | Name in Forex |
|---|---|---|
| EURCHF | European Union / Switzerland | Swiss Euro |
| EURGBP | European Union / UK | Euro Pound |
| EURCAD | European Union / Canada | Loonie Euro |
| EURAUD | European Union / Australia | Oz Euro |
| EURNZD | European Union / New Zealand | Kiwi Euro |
Yen crosses
| Symbol | Countries | Name in Forex |
|---|---|---|
| EURJPY | European Union / Japan | Euro Yen |
| GBPJPY | UK / Japan | Pound Yen |
| CHFJPY | Switzerland / Japan | Swiss Yen |
| CADJPY | Canada / Japan | Loonie Yen |
| AUDJPY | Australia / Japan | Oz Yen |
| NZDJPY | New Zealand / Japan | Kiwi Yen |
Pound crosses
| Symbol | Countries | Name in Forex |
|---|---|---|
| GBPCHF | UK / Switzerland | Swiss Pound |
| GBPAUD | UK / Australia | Oz Pound |
| GBPCAD | UK / Canada | Loonie Pound |
| GBPNZD | UK / New Zealand | Kiwi Pound |
Other crosses
| Symbol | Countries | Name in Forex |
|---|---|---|
| AUDCHF | Australia / Switzerland | Ozi Swiss |
| AUDCAD | Australia / Canada | Ozi Loonie |
| AUDNZD | Australia / New Zealand | Ozi Kiwi |
| CADCHF | Canada / Switzerland | Loonie Swiss |
| NZDCHF | New Zealand / Switzerland | Kiwi Swiss |
| NZDCAD | New Zealand / Canada | Kiwi Loonie |
Exotic currency pairs
Exotic currency pairs consist of a major currency on one side and the currency of an emerging economy on the other side (such as Brazil, Mexico, Chile, Turkey or Hungary).
Depending on your broker, you may have different exotic currency pairs available to trade.
Did you know?
According to the United Nations, there are 180 legal currencies in the world. That’s a lot of potential currency pairs! Unfortunately, not all of them are interchangeable. Forex brokers usually provide traders with up to 70 currency pairs for trading.
Keep in mind that the volume of trading in these currency pairs is not as high as the “mains” or “crosses”, so the transaction costs (fees) for trading these currency pairs are usually higher.
It is not uncommon to see spreads (the cost you pay to buy and sell) that are two or three times the spread of the EURUSD or USDJPY currency pairs.
Exotic currency pairs are much more sensitive to economic and geopolitical events due to their lower liquidity.
For example, news of a political scandal or unexpected election results can cause extreme fluctuations in the price of an exotic currency pair.
Therefore, if you want to trade an exotic currency pair, you should be more cautious and weigh different aspects.
Is it possible to trade anything other than currency pairs in forex?
Although, in fact, the definition and basis of forex is based only on buying and selling currencies.
But today, almost most Forex brokers allow you to trade on a wide range of symbols.
Among the things that can be traded in forex are gold, silver, oil, shares of major companies in the world, and even Bitcoin and Ethereum.
In forex, after currency pairs, the trade of the gold symbol or the global ounce has many fans. Many people are turning to oil trading and some people are looking for digital currency trading.
Even people in the forex market buy and sell shares of world famous companies such as Apple, Amazon and Google. Also, trading of famous indices such as Dow Jones, Nasdaq and German Dex is very common.
One thing you should always do before trading any symbol in Forex is to research the trading conditions of that symbol. Usually, the spread and commission are higher in these types of symbols.
Some symbols fluctuate a lot. Leverage in these symbols may differ from your leverage in currency pairs.