Currency pairs in the Forex market represent two countries’ economies as a pair. Therefore when we talk about currency trading we are actually using one currency to buy another currency. The global economy is expanding and most of the countries are dependent on another.
Therefore when a country makes a transaction with another country there are lots of foreign exchange transactions happening. due to the foreign transaction, the foreign currency reserve changes for a country. furthermore, the value of the currency might increase or decrease based on the economic condition of a particular country. In this way the currency value of a country fluctuates and traders can make a profit by buying or selling that currency with another currency and this is how currency pairs form.
As we know the currency represents the country's economy. Therefore the currency pair represents the economy of two separate countries. Due to the changes in economic activity one country's economy might be better than another country. Traders predict the possible change in the economy of a country to make a profit from the changes in currency pair value.
For example, let's say two currencies- the US dollar and the euro and its currency pair name is EURUSD.
Here the Euro is the first currency and the US dollar is the second currency. When the price of the pair moves up it indicates that the Euro is getting stronger compared to the US dollar. On the other hand, when the pair is moving down it means the US dollar is getting stronger than the Euro.
It is the trader’s duty to analyze the economic activity of the Eurozone and the US to predict, which country will be stronger. If the analysis says the Eurozone will be stronger traders will buy EURUSD.
The same theory applied to all currency pairs in the forex market. As we know there are hundreds of countries in the world so there are many currency pairs in the market to make a profit from.
However, for beginner traders, it is not recommended for all currency pairs to trade. In the following section, we will see the best currency pairs to trade for beginner traders.
There are major, minor, and exotic currency pairs in the forex market. However, for beginner traders, major currency pairs are best.
Before moving further, let’s have a look at what these currency pairs mean:
EURUSD is the world’s most traded currency pair. The main reason for enough liquidity in this currency pair is that more than 24% of daily turnover happens through this pair.
Within the EURUSD, the US Dollar represents the US economy and the Euro Represents the European Economy.
There are several economic releases that affect the EURUSD price:
The main market mover is the interest rate decision from both countries while other releases are also important.
GBPUSD is the second largest currency pair in the Forex market. This currency pair consists of Pound Sterling and the US Dollar while GBP is also called a Cable.
Until the end of 2019. GBPUSD pair accumulates almost 9% of total daily Forex transactions. The main market driver for this pair is the economic condition of the UK and the US.
Like EURUSD, GBPUSD is also affected by interest rate decisions from both the Federal Reserve and Bank of England. Any discrepancies among these central banks make a fresh move in GBPUSD pairs.
In 2019, investors have seen a massive movement in GBPUSD due to the Brexit turmoil. During the time GBP has lost almost 24% of its value due to the market uncertainty.
USDJPY combines the US market and the Asian market. Therefore, investors from both Asia and the US focus on this currency pair. As a result, this currency pair represents almost 13% of the daily Forex transaction until 2019.
In the Forex market, this pair is very significant as the world’s famous technical trading tool candlestick trading was introduced in Japan.
The main economic event for this pair is central bank decisions from Fed and BoJ, Consumer price index, import and export report, and retail sales.
Furthermore, USDJPY considers as an opposite movement for EURUSD and GBPUSD.
AUDUSD represents the Australian dollar against the US dollar, which is often known as Aussie. According to the latest report, the trading volume of AUDUSD is almost 5% of the total Forex turnover.
On the other hand, Australia is an export-oriented country. Therefore, the movement of AUDUSD depends on the movement in commodities like gold, iron, and coal.
As a result, any negative news for commodities put a negative impact on AUDUSD. However, the movement of AUDUSD also depends on central banks’ decisions from the Bank of Australia and Federal reserve. As a result, any negative news from the US dollar is good for AUDUSD buyers.
USDCAD is known as a commodity currency. Traders and investors often consider this pair as loonie as the Canadian coin represents the loon bird. This currency pair represents the daily 4% turnover in the market. As Canada is the world’s major oil exporter, the price movement in USDCAD depends on the oil price mostly.
As we know the oil prices are priced in the US Dollar. Therefore, Canada earns a lot of US dollars by selling oil. Therefore, with the change in oil prices, USDCAD strengthens.
USDCHF is another most favorable Forex major currency pairs. The meaning of CHF is Swiss Franc, which is the national currency of Switzerland. Traders consider the USDCHF as a safe haven currency pair.
The Swiss Franc is a safe haven as the swiss national bank takes fewer interest rates compared to the other central bank. This pair accumulates almost 3% of total daily turnover in the Forex market.
Forex trading is an exciting source of earning money from the currency market. Traders from every part of the world can participate in Forex trading as it does not require any entry barriers.
However, for a new trader, it is difficult to make a continuous profit as they fail to identify the right currency pair. Therefore it is better to stick on the major currency pairs rather than roaming on minor and existing pairs that have a lot of volatility.