Before entering in to the topic of forex currency pair let us see how exactly the term currency is defined. Commonly currency is defined as the generally accepted form of money which includes coins and paper notes which is usually issued by the government and circulated within an economy. A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the forex market. A currency pair always consists of two currencies like NZD/USD, AUD/USD, CAD/JPY, etc. The currency which appears first is called the base currency and the second currency is called the quote currency or counter currency. The forex rate of these pair determine how much of the quote currency is required to buy one unit of the base currency.
All the forex trading activity involve the simultaneous buying of one currency and selling of another but to remove the confusion one can think the currency pair itself as an instrument that can be sold and bought. If you are buying a currency pair you are actually buying the base currency and selling the quote or counter currency. This statement can be illustrated by this example – when you enter a buy position on EUR/CHF, you are buying EUR by selling CHF or simply you can say you are exchanging the euro with the Swiss franc. Let us suppose the AUD vs. CAD rate i.e. AUD/CAD=0.9520. This means you need 0.9520 units of Canadian dollar to purchase one unit of Australian dollar and it also means that you will receive 0.9520 units of CAD when you sell a unit of Australian dollar.
Popular Currencies
Name of Country
Currency
Symbol
Common Name
Code
United States of America
U.S. Dollar
$
Dollar
USD
Great Britain
Pound
£
Sterling
GBP
Europe
Euro
€
Euro
EUR
Japan
Yen
¥
Yen
JPY
Australia
Australian Dollar
$
Aussie Dollar
AUD
Switzerland
Swiss Franc
₣
Swiss Franc
CHF
Canada
Canadian Dollar
$
Loonie
CAD
New Zealand
New Zealand Dollar
$
Kiwi
NZD
When one talk about the foreign exchange rate there always involves two currencies. Had there been only a single currency worldwide then there would be no such things as forex rates. Nobody says that you give me $10 and I will give you $15 in return. So, currency exchange rates exist between the two currencies. The most widely traded currency in the world are called the Major currencies they are United States dollar, Euro, Japanese yen, GBP, CAD, AUD, and the CHF.
The Major Currency Pairs
The pairs which are considered to be the most heavily traded in the forex market are called the major currency pairs. Basically the currency pairs which include US dollar are considered to be the major pairs. However, there are no any hard and fast rules for determining which the major pairs are and which aren’t. It is widely regarded that the major pairs consist of only four pairs. They are EUR/USD, USD/JPY, GBP/USD, and USD/CHF. But in this article all these seven pairs will be included. So these are the major pairs:
Currency Pair
Countries
Common Name
EUR/USD
Euro/United States
Euro dollar
GBP/USD
UK/United States
Pound dollar
USD/JPY
United States/Japan
Dollar yen
USD/CHF
United States/ Switzerland
Dollar swissy
USD/CAD
United States/Canada
Dollar cad
AUD/USD
Australia/United States
Aussie dollar
NZD/USD
New Zealand/US
New zealand dollar
So these are the pairs that are most hugely traded in the foreign exchange world. Major pairs usually have less spreads (difference between bid and ask price). The more is the currency pair traded, lesser is the spread. In the above list AUD/USD and USD/CAD are also called commodity pairs because they are the countries which supply large quantity of commodities to the world.
Cross Currency Pairs
In simple language cross currency pairs are those pairs which don’t consist of the US dollar. One may ask why to trade cross currencies. Easy answer is to grab more trading opportunities. Because these pairs are not directly related with US dollar their behavior is different than those of major pairs. If you don’t find trading opportunity within the US dollar based pairs or if they US dollar seems highly uncertain of the future moves you can simply switch to the cross currencies. Because the major pairs are highly traded they tend to have many spikes which makethe trading decision difficult. Unlike those majors crosses tend to move more smoothly.
Let us have a look at the cross currency pairs.
Yen Cross Pairs
Currency Pair
Countries
Common Name
EUR/JPY
Euro/Japan
euro yen
GBP/JPY
UK/Japan
pound yen
AUD/JPY
Australia/Japan
aussie yen
NZD/JPY
New Zealand/Japan
kiwi yen
CHF/JPY
Switzerland/Japan
swissy yen
CAD/JPY
Canada/Japan
cad yen
Pound Cross Pairs
Currency Pair
Countries
Common Name
GBP/CHF
UK/Switzerland
pound swissy
GBP/AUD
UK/Australia
pound aussie
GBP/CAD
UK/Canada
pound cad
GBP/NZD
UK/New Zealand
pound kiwi
Euro Cross Pairs
Currency Pair
Countries
Common Name
EUR/GBP
Euro/UK
euro pound
EUR/AUD
Euro/Australia
euro aussie
EUR/CAD
Euro/Canada
euro cad
EUR/CHF
Euro/Switzerland
euro swissy
EUR/NZD
Euro/New Zealand
euro kiwi
Other Cross Pairs
Currency Pair
Countries
Common Name
AUD/CHF
Australia/Switzerland
Aussie swissy
AUD/CAD
Australia/Canada
Aussie cad
AUD/NZD
Australia/New Zealand
Aussie kiwi
CAD/CHF
Canada/Switzerland
Cad swissy
NZD/CHF
New Zealand/Switzerland
Kiwi swissy
NZD/CAD
New Zealand/Canada
Kiwi cad
Using Forex Currency Pairs Crosses to Trade the Majors
Even if you don’t like to trade currency crosses due to various reasons you can use them to increase your trading profitability. Let us assume that you saw a sell signal for the USD/JPY and USD/CAD but you want to execute only a single trade. In such conditions you can use the currency crosses to have a better view. You can simply see the CAD/JPY cross. If the CAD/JPY is trending upward it means that CAD is stronger than the JPY so obviously you would want to sell USD/CAD rather than GBP/USD. Conversely if the CAD/JPY is trending down it means JPY is stronger than CAD so you would want to sell USD/JPY rather than USD/CAD.
Knowing the Major Currencies
The US Dollar (USD)
Nickname: Greenback or Buck
The US dollar is the mostly traded currency worldwide. The first reason is because it is the world’s primary reserve currency. Second, US dollar is a universal measure to evaluate any other currency as well as many commodities like gold and oil.
In today’s world major currencies like the Euro, Great Britain Pound, Australian dollar, and New Zealand dollar, Japanese Yen, Swiss Franc and Canadian Dollar are moving against the US dollar.
The Euro (EUR)
Nickname: Single currency or Fiber
The European monetary union is the world’s largest powerful economy. The members of the Eurozone share this single currency and also the single monetary policy dictated by the ECB (European central bank). Euro is both a trade driven and a capital flow driven currency.
The Japanese Yen (JPY)
Nickname: None
Though the Japan is the third most important single economy, its currency has a much smaller international presence than the Euro or the Dollar. One of the characteristics of the yen is that it is a relatively liquid currency 24 hours. Due to the fact that most of the eastern economy moves according to the Japan, the Asian stock exchanges do have a significant impact on the Japanese currency. Japan is one of the world’s largest exporters having a consistent trade surplus. Surplus is the condition of the economy when a country’s export exceeds its imports. Demand for Yen goes up because of this trade surplus.
Great Britain Pound (GBP)
Nickname: Cable
GBP was the reference currency until the beginning of WWII, as most transactions took place in London.
Great Britain pound was the reference currency before the beginning of WWII because most of the transactions would take place in London.
London is still the largest and most developed financial market in the world having banking and finance sectors contributing to the national economical prosperity. BOE is one of the most effective central banks in today’s generation. Great Britain’s currencyis one of the four most liquid currencies in the world of forex market.
Swiss Franc (CHF)
Nickname: Swissy
Because of a lengthy history of political neutrality and a financial system known for protecting the confidentiality of its investors, have created a safe heaven reputation for Switzerland and its currency. Switzerland is the world’s largest destination of foreign capital. Swiss Franc is primarily moved by external events rather than the domestic economic situations, therefore it is sensitive to capital flows.
Canadian Dollar (CAD)
Nickname: Loonie
Canada is popular for being a resource based economy being a large producer and supplier of commodities. Canada’s major export is to the United States of America making the Loonie sensitive to US consumptions data and economical health. Canada, being a highly commodity dependent economy, Canada’s Canadian dollar is positively correlated to oil which means if the oil price goes up USD/CAD does down and vice versa.
Australian Dollar (AUD)
Nickname: Aussie
Australia exports in a huge scale to china and its economy and currency reflect any change in the situation in china’s economy. Australia being depended on commodity (mineral and farm) exports has seen the Australian dollar rising during the global expansion period and fall when mineral prices fell.
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