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Currency pairs — what are they and how to earn on them

Practically all traders and investors know that currency trading can bring much more profit and loss than buying and selling securities. The difference becomes especially apparent when transactions are made, not on exchange floors, but on the international currency market, and a broker offers marginal trading with leverage. The basic concept of such trading is a currency pair. Some investors prefer to use GBP-USD forex signals; professionals use their own technical analysis for trading.

What is a currency pair

A currency pair is a term for currency rates; i.e. the value of one currency expressed in another. This means that when referring to the Euro-US dollar pair, traders and investors speak of the Euro-dollar exchange rate or the purchase price of the European currency against the US currency.

Currency codes, established by the International Organization for Standardization (ISO), are used to denote currency pairs. The first two stand for the country and the last one stands for the currency itself. It is important to follow gbp-usd forex news to be a successful trader.

Such strict standardization is used precisely because the currency market unites trading floors around the world. To avoid problems , all stock exchanges use the same symbols.

Major currency pair

The major currencies are the pairs of national currencies of the leading countries of the world economy. For example, USD JPY news is often published on letizo.com. This list includes:

  • US dollar (USD);

  • euro (EUR);

  • British pound (GBP);

  • Swiss Franc (CHF);

  • Japanese Yen (JPY);

  • Canadian dollar (CAD);

  • Australian dollar (AUD);

  • New Zealand dollar (NZD).

Some market participants are wondering why the list of major currencies does not include the Chinese yuan, although the Celestial Empire’s economy is officially recognized as the second largest in the world, and in some respects is even ahead of the U.S. economy. The fact is that the yuan, although it recently joined the list of the world’s reserve currencies, is still not fully freely convertible; its exchange rate is mostly set administratively.

Traditionally, not all currency pairs made up of these currencies are considered basic, but only those where the national currencies of other countries are paired with the U.S. dollar. Thus, there are 7 major pairs:

  • EUR/USD is the euro / U.S. dollar;

  • GBP/USD — British pound / U.S. dollar;

  • USD/JPY — U.S. dollar/Japanese yen;

  • USD/CHF — US dollar/Swiss franc;

  • USD/CAD — US dollar/Canadian dollar;

  • AUD/USD — Australian dollar/US dollar;

  • NZD/USD — New Zealand dollar/US dollar.

Major pairs are divided into forward and reverse. Direct pairs are those in which the U.S. dollar is a quoted currency, and reverse pairs are those in which it is the base currency.

This division of basic pairs is relative enough and recognized only at the over-the-counter international market. At exchange floors, where national currencies are traded, pairs with them are considered basic.

How to trade and earn on currency pairs, using usd jpy forecasts and other instruments

A trader derives profit from the change in exchange rates. Margin trading is one of the riskiest types of operations in the financial markets. Trader’s losses are almost unlimited; in case of a negative scenario, you can lose practically all your investment capital. But accurate USD JPY forecasts allow investors to earn good money.

Leverage trading is also available at exchange floors, but its size is much smaller and is determined by the risks accepted by a clearing center. This gives a significant increase in the profitability of the instruments and increases the risks for the traders.

As at other financial markets, trading in currency pairs is carried out in lots. The size of a standard lot is 100,000 units of the base currency. Forex dealers allow making transactions in micro lots — from 0.01 of a standard lot, which considerably decreases requirements to the size of capital. Stock exchanges implement similar measures.