Currency Pairs: Buying and Selling

Forex market (FX) trading is a continuous process of buying and selling one currency for another currency.

Currencies are traded via a forex broker or a CFD provider, and they are traded in pairs. They are also quoted by comparing them to a different currency.

For example, the British Pound (GBP) and Japanese Yen (JPY) are traded in pairs, and so are the Euro (EUR) and the US dollar (USD).

While trading in the Forex market (FX), you are allowed to buy and sell currencies.

Currency pairs are actually categorized into three types:

The "Majors"

The "Crosses"

The "Exotics"

While in Forex (FX) trading, the major currency pairs always include the US dollar (USD).

The cross-currency pairs do not include the U.S. dollar (USD). Crosses that include any of the major currencies except the US dollar is known as “MINORS”

Whereas, the Exotic Currency pairs include – one major currency and one currency from the existing market.

Major Currency pairs

The currency pairs that are listed in the below chart are called as “Majors.”

Majors are traded quite often and constitute of the US dollar (USD) on one side.

In general, there are eight major currencies but only seven major currency pairs exist.

In comparison with the crosses and exotics, price movements move more frequently with the majors, providing of with more trading opportunities.

Majors provide more liquidity in the world.

Liquidity describes the level of activity in the financial world.

In the Forex Market (FX), liquidity is based on the total number of active traders purchasing and selling off the particular currency pair and the volume it is being traded.

The more the liquidity of something, the more frequently it is exchanged.

The EUR/USD currency pair, for example, is traded more frequently and in larger volumes than the AUD/USD currency pair.

Thus, the EUR/USD pair is more liquid than the AUD/USD pair.

Major Cross Currency pairs or Minor Currency pairs

Cross-currency pairs, or simply "crosses," are those currency pairs that include any of the two major currencies other than the US dollar.

Minor crosses are smaller versions of the major crosses.

Although not as popular as the majors, the crosses are nonetheless very liquid and offer plenty of trading opportunities.

The three major non-USD currencies, EUR, JPY, and GBP, are the most actively traded crosses.

EURO CROSSES

YEN CROSSES

POUND CROSSES

Exotic Currency Pairs

A currency from developing or emerging markets is known as an exotic currency.

One major currency coupled with the currency of an emerging country, such as Brazil, Mexico, Chile, Turkey, or Hungary is known as Exotic Currency pairs.

An exotic currency pair consists of one main currency and one exotic currency.

A few instances of exotic currency combinations are shown in the chart below.

Do you want to try to figure out what the other monetary symbols mean?

You may notice the following exotic currency pairs depending on your forex broker; therefore it's important to know what they are.

Keep in mind that because these pairs aren't as popular as the "majors" or "crosses," the transaction costs of trading them are frequently higher.

Spreads that be two or three times larger than the EUR/USD or USD/JPY are not uncommon.

Exotic currency pairs are significantly more vulnerable to economic and geopolitical events due to their general lower liquidity.

A political scandal or unexpected election results, for example, can cause the exchange rate of an exotic pair to move wildly.

So, if you're thinking about trading unusual currency pairs, keep this in mind.

Here's a more complete list for those of you who are truly fascinated by exotics.

There are other "groups" of currencies that are bandied around in the FX market that you should be aware of in addition to the three primary categories of currency pairs.

Currency Code and Code Chart

G10 Currencies

The G10 currencies are ten of the world's most heavily traded currencies, as well as ten of the most liquid currencies.

Traders purchase and sell them on the open market on a regular basis, with no impact on their own international exchange rates.

The Scandies

Scandinavia is a Northern European sub region with deep historical, cultural, and linguistic linkages.

In local parlance, "Scandinavia" refers to the three kingdoms of Denmark, Norway, and Sweden.

Their currencies are known as the "Scandies" when used together.

Denmark and Sweden formed the Scandinavian Monetary Union to put their currencies on a gold standard back in the day. Norway came in later.

This meant that these countries now shared a single currency with the same monetary value, except that each country struck its own coins.

The gold standard was abandoned after World War I, and the Scandinavian Monetary Union was disbanded. Even if the values were different, these countries elected to preserve the currency. And things are still as they are.

The names of their currencies are all very similar. That's because the term "krone" or "krona" actually means "crown," and the variations in spelling reflect the variances across North Germanic languages.

CEE Currencies

Central and Eastern Europe is referred to as "CEE."

Central and Eastern Europe is a term that refers to countries in Central Europe, the Baltic Republics, Eastern Europe, and Southeast Europe (the Balkans), and mainly refers to former communist states from Europe's Eastern Bloc (Warsaw Pact).

The OECD refers to Albania, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, the Slovak Republic, Slovenia, and the three Baltic States of Estonia, Latvia, and Lithuania as Central and Eastern European Countries (CEECs).

There are four primary CEE currencies to be aware of in the FX market.

BRIICS

The name BRIICS stands for Brazil, Russia, India, Indonesia, China, and South Africa, a group of six key growing countries.

The first four were originally referred to as "BRIC" (or "the BRICs"). Goldman Sachs coined the term BRICs to describe today's new high-growth emerging economies.

The OECD coined the acronym BRIICS when it included Indonesia and South Africa.

That’s it! I hope you enjoyed reading this article and acquired some valuable information. See you in the next article.

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