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Would you jump into the ocean fully knowing that you can’t swim? Probably not. It’s, therefore, surprising how so many people dive into the Forex market without fully appreciating even the basics. At CAPEX, we help you get your best foot forward in Forex trading. If you’re looking to get the basic currency pair explained, you’ve come to the right place. We put together an in-depth guide for all things you could want to know about Forex currency pairs.
When you’re trying to attain enough knowledge to consistently make the right trades and earn a substantial amount of money, reading a few guides just won’t cut it. Enter the CAPEX Academy. This part of our platform is dedicated to providing traders with a wide range of information via different media. Depending on how you prefer to learn, you can access videos, podcasts, and more from the CAPEX Academy. So, once we’re done having a currency pair explained, you can learn about the different factors that affect and help you predict the trends.
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As you’ll find in subsequent sections of this guide, there is a rather wide range of currency pairs that you can trade here at CAPEX. While many people focus on a limited range of options, it’s always a bonus to have the liberty to go against the tide.
At CAPEX, we facilitate trading in over 50 currency pairs. As such, when you’re done getting even the most advanced currency pair explained, you have more room to experiment. You can also act on your research when you’re feeling bullish about a particular currency pair that may not be available on a lot of other platforms. But that’s not all. Let’s look at some even more interesting highlights you can get by working with CAPEX.
The first step to getting a currency pair explained is to provide the most basic definition of the term. As implied by its name, a currency pair is a quotation of two currencies, with the value of the first being expressed in how much of the second currency you’ll need to buy one unit. The first one is the base currency and the second one is the quote currency. Sure, all this may sound a bit confusing. That’s why, at CAPEX, we like using examples.
You’ve likely come across a currency pair expressed as USD/CAD.
Currencies are expressed using 3-letter codes. In this case, USD refers to the US dollar as the base currency and CAD is the Canadian dollar as the currency. So, when someone mentions the price of this currency pair, they mean the amount of CAD you’ll need to buy US$1.
Even though each currency pair has two components, it’s still considered as one Forex trading asset. The price, on the other hand, is two-pronged. You get the bid (buying) price and the ask (selling) price. The bid price is the amount of the second (quote) currency you need to buy the first (base) currency. The ask price is the reverse, which is the amount of quote currency you get if you sell the base currency. For example, the USD/CAD bid and ask prices may look like this: 1.1786/1.1799. The difference between bid and ask prices is called the spread. This is how Forex brokers receive revenue from their services.
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Even more than wanting to have a currency pair explained, most traders want a better understanding of how to buy and sell currencies. When trading most assets, you can either buy or sell—there are no pairs and the value of one asset doesn’t depend on that of a second one. As we’ve seen with currency pairs, however, everything is paired together. Therefore, whenever you make a trade, you’re both buying and selling.
For example, when you practice selling the USD/CAD pair using our CAPEX demo account, you’re selling the US dollar and buying the Canadian dollar. Whenever you expect the base currency to weaken against the quote currency, your trade is called “going long”. Buying the USD/CAD pair, on the other hand, means you’re buying the US dollar and selling the quote currency Canadian dollar. This is called “going long”.
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Being able to classify currency pairs is a vital step to figuring out how prices move. The number of currency pairs available on the market is related to the number of currencies currently available. Currencies come and go, but major pairs have stood the test of time. Major currencies are the ones that have the most trade volume against the US dollar. These include:
Most traders focus on the major pairs, as they are the most popular and researchable assets. They also tend to have the lowest spread. Be that as it may, it’s important to keep in mind that there’s a vast array of other options. At CAPEX, we advise traders to look into the minors whenever the major pairs market hasn’t been looking favorable for some time.
Just as you would get comfortable swimming in a pool before you set out to conquer the ocean, CAPEX provides you with a free, safe demo account to learn the Forex trading ropes. Here, you can deepen your understanding of the industry and refine your trading strategies without risk. You can even access leverage to your trades and get comfortable with how various scenarios would play out in the real world. So, whether you’re still new or you’re a wise old dog trying to pick up a few new tricks, a CAPEX demo account is your proving ground.
Currency pairs that don’t include the US dollar are referred to as crosses. These pairs aren’t as liquid as major currency pairs. Not all crosses are minor currency pairs though. Minors are crosses of the other sides of major currency pairs, including the Euro, British pound, Japanese yen, and more. Some of the most popular minor pairs include:
Besides being less liquid, these currency pairs typically have wider spreads than majors. Exotic pairs are traded even less than minors, which affects the liquidity and spreads even more. These pairs include currencies from emerging markets such as the Argentine Peso, Singapore Dollar, Indonesian Rupiah, Egyptian Pound, and South African Rand. As you can imagine, there’s limited historical data for these currency pairs. As such, you’ll have less to go on when you’re trying to predict the trends. Their movement also tends to be rather erratic.
If there’s one thing to have about a currency pair explained, it’s this—if it doesn’t move, you can’t make money on your trades. Currency pairs move when the base or quote currencies strengthen or weaken. Using the same example of the USD/CAD, the currency pair would rise if the Canadian dollar strengthened while the US dollar remained static. If the USD weakens and the Canadian dollar remains static, on the other hand, the pair would fall. At CAPEX, we always explain the basics, so let’s look into the factors that affect these relative values.
To put things into perspective, when you buy a currency, think of it as buying a piece of that country’s economy. As such, fundamentals like economic data, political shifts, and interest rates will affect the value of that particular currency. If a central bank increases interest rates, investors are likely to buy more of the currency in search of higher yields. The currency, therefore, strengthens, assuming all other factors are constant. Political factors, such as elections, scandals, and wars create economic instability and weaken currencies. Whenever economic data, such as the CPI (inflation) data, gross domestic product, and employment data is released, it provides traders with insight into a country’s economic performance. This, in turn, affects the currency value. Being able to research and understand the possible ramifications of such data is vital to a fruitful Forex trading career.
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At CAPEX, we not only provide information about Forex trading and other financial products, but we also help you get practical experience. Using our demo account, you can access free training and practice in real market conditions. All financial risk is thrown out the window, as you’d be trading with virtual cash. A CAPEX demo account allows you to get familiar with charts, things like candlestick patterns, and learn to analyze market data. Besides polishing up your technical skills before you start trading with real money, you’ll understand the value of discipline and consistency.
For example, a lot of new traders blow their accounts because they take on too much leverage. Opening a CAPEX demo account is, therefore, a great way to determine the appropriate leverage levels. You can also explore and choose between trading time frames, such as day-trading and swing trading. Best of all, we help you with trading forecasts on major currency pairs, so you stay on top of the Forex market every time. At CAPEX, our technical analysis and Forex market news are known to help traders become more profitable.
Before you start trading currencies, one of the very first things you should do is get the basic currency pair explained. As we’ve described in this article, these are simply quotations of two currencies, with the value of the first currency being expressed in terms of how much of the second you need to buy one unit. A typical currency pair, EUR/USD, expresses how many US dollars a trader needs to buy 1 Euro. Major currency pairs include several currencies, such as the Canadian dollar, Euro, British pound, and Japanese yen being traded against the US dollar. Minor pairs are made up of these secondary currencies.
We also explained some fundamentals that affect the value of currency pairs. CAPEX provides a wide range of resources to help you consistently buy low, sell high, and make a profit. Sign up for a CAPEX demo account today, instantly start on your journey to becoming an expert Forex trader.