• December 14, 2021

What are currency pairs and how to use them in forex trading?

Forex trading is one of the most popular forms of trading in today’s market.

 

Many traders around the world are involved in forex trading, either as full-time professionals or part-time investors.

 

However, not many know the history behind this profitable business.

 

Forex originated from an unlikely place – England!

 

The first-ever instance of modern foreign exchange dates back to 1571 when Spain and Portugal attacked Antwerp. When this happened, English merchants fled to other parts of Europe with their valuable goods, transporting them via ships for sale elsewhere.

 

This marked the beginning of what we call forex nowadays – buying one currency while selling another at a different time or place to make a profit.

 

Since then, more countries have started using foreign exchange as a way to trade goods and services.

 

Currency pairs in forex trading

To deal in the foreign exchange market, one needs to have a clear understanding of currency pairs.

 

Currency pairs simply mean two different currencies being exchanged during a transaction. It is usually written as e.g. EUR/USD or USD/JPY where one unit of Euro is equivalent to 1.2345 US Dollars or vice versa if this was an American dollar trading pair.

 

Currency pairs are essential because they show the exchange rates in the market. An exchange rate shows how much one currency is worth concerning another currency.

 

Currency pairs are an alternative way of writing down prices or numbers used when trading different currencies.

 

One must remember that the forex rates are constantly changing – 24 hours a day, five days a week, every day!

 

This means you have plenty of opportunities to make money when you know how to read these charts correctly.

 

Here’s an example of what it looks like:

↘ EUR/USD 01-APR-2016 13:10 121 1.0955 5 The first part (EUR/USD) shows that this pair refers to Euro and US dollar where 1 Euro roughly equal strength of their value against each other – traders can study these numbers if they want to make informed decisions on when to buy and sell certain types of currencies for profit over time.

 

There are about 15 major currency pairs that traders commonly use, but these can be grouped into three main categories.

 

Currency baskets

USD with EUR or GBP is an excellent example of this type of currency pair. Although the two currencies involved in the basket may have similar values, there is always some fluctuation in between, so investors can still make money out of it.

 

This type of trading involves multiple currency pairs taking place at the same time. Therefore, understanding one currency pair does not mean much if you want to understand how forex works fully!

 

Cross-rates

These types of exchanges involve multiple currencies but trade according to their value against another specific currency like USD/JPY or AUD/NZD.

 

Currencies within this category may not have much in common, but the exchange rates are still relative to each other.

 

Currency index

These types of exchanges involve currencies like EUR or GBP against a basket of currencies like USD, JPY and AUD, which makes it easier for investors to make money over time.

 

This is not as easy as it sounds because indices may also change depending on certain economic factors that affect one currency within the group.

 

This type of trading allows investors who are looking for short-term gains to receive them with ease if they do their research correctly.

 

Like any business, forex trading comes with risks; however, if you know how to read market trends and choose your times wisely, then you could potentially earn up to %300 profit per trade!

 

Just remember to learn as much as you can about currency pairs and how they work before placing any trades.

 

Conclusion

If you want to start trading in the foreign exchange market, it is best if you know what currency pairs are and how they work.

 

There are three main types of currency pairs – cross-rates, currency baskets, and index. You need to learn more about each type so you can make informed decisions when making trades!

 

By learning more about forex trading, you will be able to earn money with ease!