HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
MultiBank Group information and reviews
MultiBank Group
84%

Choosing a trading instrument: how to trade currency pairs


Early on the path to becoming a trader, every beginner must determine what to trade and how. This choice should be made based on the desired goals, the available budget, and personal preferences. To help you compare the aspects of main groups of trading instruments, we are launching a new series of articles on choosing trading instruments. Let’s start with one of the most popular options — trading currency pairs.

What is a currency pair

A currency pair is the ratio of prices of two currencies. The term is often used in relation to Forex trading, where a trader always sells one currency when buying another. The first currency in the pair is called the base currency, and the second is the quote currency.

Where to trade currency pairs

Currency pairs are traded on the previously mentioned foreign exchange market — Forex. The uniqueness of this platform lies in its decentralization. Quotes are formed under the direct influence of traders themselves. Forex is a kind of exchange office where currencies are purchased and put up for sale at their respective values.

How to trade currency pairs on Forex?

The system is pretty simple. For example, what do they mean when they say that the currency pair EUR/USD has a value of 1.2040? You have 100 euros and you want to understand how many US dollars you can buy with this money. You need to multiply 100 by 1.2040. The answer is 120.4. That is how much US dollars you can buy for 100 euros at this rate.

What affects exchange rates

First, macroeconomic data has a great impact on currency rates. A Forex trader should always keep track of international economic news and current statistics: changes in the political arena, the results of central bank meetings, the latest employment data, inflation rate, etc. Also, the degree of the central bank’s involvement in the local economy, as well as the general market sentiment can cause significant fluctuations in quotations. Without fundamental analysis and constant monitoring of this data, your chance for a successful trade goes to zero. There are special macroeconomic calendars that make it much easier for traders to navigate in the large flow of information. They present the most significant events that can seriously affect the quotes.

Another indispensable assistant of a Forex trader is technical analysis. Technical analysis works with the price chart of currency pairs. The ground rules here are the same as when trading on the stock market. Wave analysis, indicators, and chart patterns should be your best helpers and decision makers.

To further improve your results, we recommend using a combination of fundamental analysis of important economic events and technical analysis of price charts.

What you need to know before starting to trade currency pairs

How to choose a currency pair

The most demanded currency on the market is the US dollar (USD). It participates in the most transactions. The prices of other currencies are expressed in relation to USD. The ratio of the currency of any country to the US dollar is called a direct quote. And the ratio of the US dollar to other local currencies is called an indirect quote. Combinations without the US dollar are called cross rates.

The most popular pair for trading is EUR/USD. It accounts for about 70% of all transactions made on the foreign exchange market. Many traders have been trading only EUR/USD for years and made significant profits. Why is EUR/USD the most popular currency pair? Because both currencies in this combination are in demand all over the world, they are actively traded, the volumes of currencies are high, and the spreads are minimal, the current rate is available around the clock.

Combinations of the yen (JPY), the pound sterling (GBP), the Swiss franc (CHF), the euro (EUR), the Canadian dollar (CAD), and the Australian dollar (AUD) are also in great demand (about 85%). These pairs are the main pairs on Forex, since they are the most profitable and safest choice for trading. Also, due to their great popularity, they have the highest liquidity and the tightest spreads.

Along with the major pairs, there are also so-called exotic pairs — combinations of rare local currencies. They are particularly volatile and unpredictable. Operations with such assets can bring serious profits, but they carry high risks.

Volatility is the range of price changes in a certain (most often daily) period. Some currency pairs are highly volatile, such as GBP/JPY and GBP/USD. Trading them is very risky, and it should only be done by professional traders with a special trading strategy designed for strong price fluctuations. The pairs EUR/AUD, EUR/CAD are slightly less volatile. EUR/USD, USD/CHF, USD/JPY come next. These are the pairs used by the most traders due to the absence of sharp swings in their prices. The most steady currency pairs are EUR/GBP, EUR/CHF. Fluctuations in their quotations are 3–5 times lower than in those of major currency pairs.

So, to trade or not to trade, that is the question. The answer is up to you. In this article, we have covered the main aspects of trading currency pairs in Forex. In the following articles in this series, we’ll talk about other popular instruments so that you can make your own decision and choose the suitable assets for your trading.


RELATED

What are penny stocks?

Penny stocks, also known as “junk” stocks, are securities of small or problem-riddled companies that usually trade at a price of less than $5. They are not frequently-traded stocks...

Forex: perfect source of first income for the youth

In today’s fast-paced digital world, young people seek new avenues to earn income and gain financial independence. Among the options available, Forex trading stands...

Forex swap: what it is, how it is calculated, and what are swap-free accounts in Octa

One of the most misunderstood terms in Forex trading is swap or Forex swap. To trade successfully, you should understand what Forex swap depends on and how it is calculated. This article describes what a Forex swap is, explains its mechanics, and describes swap-free trading accounts.

Forex Market Hours

Other than being the largest and most talked about financial market out there, Forex has a very appealing characteristic - around-the-clock operation. Being available...

Beginner's Guide to Forex Trading with FXTM

If you're new to the world of forex trading and looking to embark on your trading journey, you've come to the right place. Forex trading can seem complex at first, but with the right guidance...

Guide to Account Security: Safeguarding Against and Addressing Scams

At forex-ratings.com, your security is of paramount importance to us. Our mission is to offer you a digital environment where you can invest, trade, and communicate confidently...

The Art of Money Management

Beginner traders usually consider money management to be some dull paperwork; outwitting and conquering the market for a short-term profit seems much...

What is the MIB Index?

The MIB Index is the leading stock market index for companies listed in Italy. It includes the 40 largest companies in the country and across a wide range of sectors...

Is Demo Trading Really Worth It?

There is an unfavorable outlook on demo trading merely for the fact that you can’t generate profit with virtual money. A lot of traders essentially...

Tight spreads. High liquidity. Instant execution

It's commonly believed that success in currency trading comes from professionalism and luck. However, often it's far from the truth. You should always remember that...

What is a moving average and how do I use it?

Moving averages are one of the easiest types of technical indicator to understand and use. They provide a simplified view of the price action of an asset, with most...

Negative Balance Protection: What Is It And How Does It Work

Contract for Difference (CFD) trading is a popular form of investment, but as with any investment, it involves a degree of risk. Managing risk in trading is critical to protect your capital...

How To Set Financial Goals In A Crisis

Clearly setting goals is an important step on the road to financial success. They, unlike abstract desires, will definitely work. At all times, you need to be serious and conscious about this question...

How To Become A Successful Trader In 2023

In today's world, trading has become an attractive career choice for many individuals looking for financial independence and flexibility. However, becoming a successful trader requires more than just basic knowledge...

Top6 Benefits of Forex Trading

Forex trading, also referred to as foreign exchange, is the process of exchanging currencies to potentially make a profit, usually for trading purposes...

How to Effectively Assess Your Forex Trading Performance

In the fast-paced world of Forex trading, constant growth and adaptation are essential. This not only demands a thorough understanding of the market dynamics but also necessitates regular assessment of one's trading performance...

Embarking on ETF Trading: A Beginner's Guide

Entering the world of Exchange Traded Funds (ETFs) trading might appear daunting to newcomers, but it's a surprisingly accessible endeavor, thanks to the abundance of online resources and tools available today...

Oil Is Black Gold for CFD Trading

Oil is a mineral used to produce fuel. And it is also used as a raw material for household chemicals, cosmetics, clothes and many other products are made from it. But not only. Oil is also a popular commodity...

Are you looking for a new hobby? Put Your Skills to Better Use

Are you looking for a new hobby, but aren't quite sure where to start? Have you considered you might be a trader? Below are a series of questions that will help...

Forex Trading - The Actual Financial Solution

Forex trading has proven to be a steady source of income for many traders across the globe. The amazing statistics in 50+ Forex & Trading Industry Statistics...

XM information and reviews
XM
82%
FP Markets information and reviews
FP Markets
81%
FXTM information and reviews
FXTM
80%
AMarkets information and reviews
AMarkets
79%
Octa information and reviews
Octa
79%
BlackBull information and reviews
BlackBull
78%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.