Currency Pair in Forex Trading
Currency Pair in Forex Trading
Currency pairs are one of the things that forex traders need to know. Many questions about currency pairs for forex are mainly from new traders. These newbies generally ask what currencies are suitable to be paired with each other. There is no main benchmark in this currency pair because the match of the currency pair is based on the trader’s own knowledge. But in general it remains the most traded currency that is widely traded.
In general there are 4 types of currency pairs traded in forex.
MAJOR CURRENCY PAIR
The main currency pair is a particular country currency paired with a US Dollar. In addition to currencies, commodities, gold and silver are also traded in US Dollars.
The movement of correlation between major currencies influences one another.This can be seen for example in EUR / USD and GPB / USD has a direct or identical correlation. So in general the direction of movement of the value is the same even though not exactly. This is seen when the EUR / USD trend rises, the GBP / USD trend at the same time also rises. In this case both are said to have positive or directional correlations.
But on the contrary USD / CHF and EUR / USD have a negative or opposite correlation which if the EUR / USD trend rises then the USD / CHF trend will decrease at the same time. This can be seen on the EUR / USD and USD / CHF charts at the same time frame but in general the trend of the movement will be opposite.
Correlation factors need to be considered because if you misunderstand the correlation in the open position it will increase the risk. For example the risk will increase when open buy on EUR / USD and GBP / USD. This can also happen when open buy EUR / USD and open sell USD / CHF.
Another thing, the correlation of the price movement of USD / CHF will be more visible than EUR / USD and GBP / USD and give more signal of clear price movements. The EUR / USD currency pair is the highest at 27%. The next position is USD / JPY 13% and GBP / USD 12%.
COMMODITY CURRENCY PAIRS
Currencies that fall into the category of commodity currencies are the currencies of countries that depend on commodity exports such as mining products or their produce. Commodity currency pairs in forex trading are AUD / USD, NZD / USD and USD / CAD. Besides currencies, gold (XAU / USD) and silver (XAG / USD) fall into the category of commodity currencies because they are traded in USD. All commodity currencies have a positive correlation with the commodity produced.For example AUD / USD is positively correlated with XAU / USD and USD / CAD correlates with world crude oil prices.
CROSS CURRENCY PAIR
Cross currency is a currency pair that is not traded in US dollars. NZD / JPY, GPB / JPY, EUR / JPY and AUD / JPY are some of the currencies that are often traded.
EXOTIC CURRENCY PAIR
The currencies included in this category are the currencies of countries whose economic development rates are high and paired with Euros or US Dollars such as USD / SGD, USD / MXN, USD / ZAR, EUR / TRY and USD / TRY. The weakness of trading with exotic currencies lies in high spreads but low liquidity.
Paying attention to the correlation between currency pairs is very important in forex trading. But we cannot underestimate the timing factor. If previously said that the good of a currency pair is also determined by the knowledge of traders, but time is also very influential. The forex market does provide 24 hours to trade, but not always 24 hours is a golden time for trading. Traders must pay attention to when it is appropriate to be able to trade with the expected results.