Understanding the Importance of Currency Pairs in the Forex Market

An increasing number of investors participate in foreign exchange trading for the purpose of earning huge profits and money. Thus, in order to be able to trade in the forex market, investors trade different pairs of currencies. This means that they sell a particular foreign currency in order to purchase another foreign currency. Thus, currency pairs have been created to facilitate foreign exchange trading. For instance, USD-JPY is a pair of currency. In every pair, one particular currency is treated as a commodity white the other currency is treated as money. In case of USD-JPY, USD is considered to be a commodity whereas the USD is treated as money. Hence, when a trader purchases USD-JPY, he/she pays USD to purchase JPY. In foreign exchange trading the U.S dollar is considered to be the primary currency and all the transactions are carried out in terms of USD. As far as the currency pairs are concerned, the forex market has 4 major types of pairs including GBP-USD, EUR-USD, USD-CHF and USD-JPY.

Out of the above mentioned pairs of currencies, the EUR-USD is widely used by traders, which makes the pair extremely popular. In fact, over seventy percent of the forex transactions are conducted in EUR-USD. Another important thing to note about forex trading is that even giant Inter banks as well as central banks engage in trading of currency pairs. Sometimes even countries exchange foreign currencies to control the weaker currency. Also, EUR-USD is considered to be the most liquid pairs in the forex market. This is because this pair is the highest traded pair in terms of volume. As far as the active pair of currency is concerned, GBP-JPY is considered as the volatile and active currency pair whereas EUR-JPY holds the 2nd position in terms of activity and volatility. Both, GBP-JPY as well as EUR-JPY works in similar directions and therefore when one of the pairs is down the other one goes up. Also, USD-SEK, USD-NOK as well as USD-DKK are considered as exotic pairs of currencies owing to their PIP value.

When it comes to earning profits through trading, investors must trade currency pairs that are showing sharp and strong signals. Apart from this, traders must also understand that the foreign exchange market basically has three important sessions including New York session, Asian Session and London session. The market is highly volatile when both the New York as well as London sessions are operating together i.e. from 8a.m to 1p.m EST. Hence, the ideal time for trading currency pairs is when the market is most volatile and active.

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