If you’re entering the trading world, you’ll come across a term known as ‘currency pairing’. When you trade, you’re basically buying one currency and selling the other, which is why currencies are often paired. Let’s take a look at how currency pairing works.
You’re speculating on which currency will perform stronger or weaker compared to another. Let’s take the EUR/USD for example, The EUR is known as the base currency and the USD is the quote currency.
Reading a quote
GBP/JPY = 149.500
What does this mean? The GBP is the base currency and the JPY is the quote currency. This basically states that 1 GBP is 149.50 Japanese Yen.
What currency pairs are popular?
These are known as the ‘majors’ and they are:
- EUR/USD (Euro/US Dollar)
- USD/JPY (US Dollar/Japanese Yen)
- GBP/USD (British Pound/US Dollar)
- USD/CHF (US Dollar/ Swiss Franc)
They account for a majority of the speculative trading in Forex.
Are there any other currency pairing?
These are currency pairs are known as ‘minors’ and don’t include the US Dollar but include other major currencies: the Euro, British Pound, and the Japanese Yen.
Exotic currency pairs
These are major currencies that are paired with the currency of an emerging economy.
- EUR/TRY (Euro/Turkish Lira)
- USD/SEK (US Dollar/Swedish Krona)
- USD/NOK (US Dollar/Norwegian Krone)
- USD/DKK (US Dollar/Danish Krone)
- USD/ZAR (US Dollar/South African Rand)
- USD/HKD (US Dollar/Hong Kong Dollar)
- USD/SGD (US Dollar/Singapore Dollar)
These are the basic and most effective currency pairings you’ll come across while trading. Now that you’re aware of the basics, you’re one step further in mastering the markets like the professionals.