Key Factors and Their Effects on Currency Trading

In the forex market the currencies are traded in pairs. There are three main types of currency pairs:

-Major pairs Major currency pairs are the most traded pairs on the forex market. They include the USD, EUR, JPY GBP, CHF, the CAD, and the AUD. Major pairs are highly liquid and come with small spreads, which makes them popular among traders.

-Minor pairs Minor currency pairs sometimes referred to as cross-currency pair don’t include USD in their pairing. They are often traded against USD or other major currencies. Examples of minor pairs include EUR/GBP and AUD/CAD as well as CHF/JPY. Minor pairs can be more liquid and have larger spreads than major pairs.

Exotic pairs include the major currency in conjunction with the currency of a developing or small-sized economy. They are typically less liquid and have wider spreads than major and minor pairs. Some examples of exotic pairs are USD/MXN (U.S. dollar/Mexican peso), USD/TRY (U.S. dollar/Turkish lira) and USD/ZAR (U.S. dollar/South African rand).

Every Forex trader should be aware of the following major currencies:

-U.S. Dollar (USD) USD: The U.S. dollar is the world’s most traded currency and is involved in most Forex transactions. It is the primary reserve currency and is used in many commodities and international trade. The USD is regarded as a safe haven currency. It can be affected by a variety of factors, including U.S. interest rates, political and geopolitical events, as well as economic information.

Euro (EUR): 19 countries in the European Union use the euro as their second-most traded currency. It is affected by economic data, political events, and monetary policy decisions made by the European Central Bank.

Japanese Yuen (JPY). The Japanese yen, the third most traded in the world, is used to fund carry trades. The Bank of Japan’s decisions on policy can be influenced by economic data.

-British Pound (GBP): The British pound is the currency of the United Kingdom and is affected by economic data, Bank of England policy decisions, as well as Brexit-related events.

-Swiss Franc (CHF) CHF: The Swiss franc is considered an investment in safety and is often used by traders as a hedge risk. Swiss National Bank policy decisions as well as global risk sentiment and economic data affect this currency.

Canadian Dollar (CAD). The Canadian Dollar is often referred as a commodity currency due to the country’s vast exports of natural resource. The Canadian dollar is affected by a number of factors which include the price of oil economic statistics, as well as Bank of Canada policies.

-Australian Dollar (AUD) is the Australian dollar is another commodity currency that is heavily influenced economic data, commodity prices, and Reserve Bank of Australia policy decision-making.

New Zealand Dollar (NZD). The New Zealand Dollar is also a currency that is influenced by the economic environment, commodity price, and Reserve Bank of NZ’s policy decision-making.

Conclusion

In the forex market the currencies are traded in pairs. There are three main types of currency pairs:

-Major pairs: Major currency pairs are the most traded pairs in the market for forex. They include USD, EUR, JPY GBP, CHF USD, CAD and. Major pairs are very liquid and are characterized by minimal spreads, making them popular among traders.

Minor pairs Minor currency pairs often referred to as cross-currency pairings don’t include USD in their pairing. They are frequently traded against USD or any other major currency. Minor pairs are EUR/GBP or AUD/CAD, as well as CHF/JPY. Minor pairs can be less liquid or have wider spreads when compared to major pairs.

Exotic pairs: These pairs are made up of a major currency and a minor currency. These are usually less liquid, and they are more spread-based over minor and major pairs. The exotic pairs are USD/MXN, USD/TRY, USD/ZAR and USD/ZAR.

Every Forex trader should know the following major currencies:

-U.S. dollars (USD) (USD): the U.S. dollar, which is used in many Forex transactions is the most frequently traded currency in the world. USD is the principal reserve currency of the world and is extensively employed in international trade as well as commodities. The USD is regarded as a safe haven currency. It’s impacted by a variety of factors, including U.S. interest rates, political issues, and economic information.

–Euro (EUR): The euro is the 2nd most traded currency worldwide and is utilized by 19 European Union countries. The euro is impacted by economic events, political developments, and policy of the European Central Bank.

JPY -Japanese Yuen (JPY). The Japanese yen, the third most traded currency globally is used to finance carry trades. The Bank of Japan’s decision-making process can be influenced by economic information.

British Pound (GBP): The British Pound is the currency of the United Kingdom and is affected by economic data, Bank of England policy decision-making, and Brexit-related developments.

-Swiss franc (CHF). The Swiss franc, which is an investment currency that is widely used by traders to hedge against the risk of. The currency is influenced by the Swiss National Bank’s policy decisions, global risk sentiment and economic data.

Canadian Dollar (CAD). The Canadian Dollar is often referred as a commodity currency due to Canada’s large exports of natural resource. It is influenced by factors such as oil prices, economic data as well as Bank of Canada policy decisions.

-Australian Dollar: The Australian Dollar is another currency that is heavily influenced and influenced the Reserve Bank of Australia’s decisions on policy and economic data as well as the prices of commodities.

-New Zealand Dollar (NZD): The New Zealand dollar is also a commodity currency influenced by a variety of factors, including economic information, prices of commodities, and Reserve Bank of New Zealand policy decision.

Conclusion

Traders need to understand the characteristics of each type of currency pair, as the different types of currency pairs may have distinct characteristics in terms of trading and risks associated with the risk they carry. Understanding the types of currency pair can help traders to make informed decisions about which pairs to trade and how to handle the risk.

Author: Prisape