As a beginner in the world of trading and investing, it’s important to understand the concept of currency pairs. Currency pairs are two different currencies that are traded against each other on the global foreign exchange market.
The first currency in a pair is referred to as the base currency, while the second currency is called the quote or counter currency. For instance, if you see a quote for EUR/USD 1.1000, it means that one Euro can be exchanged for 1.1000 US Dollars.
Currency pairs are usually classified into three categories: major, minor and exotic pairs. Major pairs consist of currencies from developed economies such as USD (US dollar), EUR (euro), JPY (Japanese yen), GBP (British pound sterling), CHF (Swiss franc) and CAD (Canadian dollar). These are often seen as stable currencies with high liquidity levels and low volatility rates.
Minor pairs have less liquidity compared to major ones but still offer good opportunities for traders who want to diversify their portfolio risk by investing in emerging markets like AUD/JPY (Australian Dollar/Japanese Yen) or NZD/CAD(New Zealand Dollar/Canadian Dollar).
Exotic pairs contain one major currency paired with a lesser-known or developing country’s currency such as USD/HKD(US dollar/Hong Kong dollar) or GBP/ZAR(British Pound/South African Rand). Trading exotics can be risky due to their low liquidity levels that result from unpredictable economic events happening in those countries.
Understanding how these categories work together will help you make informed investment decisions while trading forex. As an investor/trader, it’s important to keep up-to-date with current events around your chosen economy and its respective policies that may affect your investments.
In conclusion, having an understanding of how different currencies interact through trading is essential when considering any investment decision within this space. By keeping up-to-date on key economic indicators globally and locally; you can make informed choices that will help protect your investments and lead to financial success over time.