Currency Pairs and Their Prices

What are currency pairs

When traders buy and sell currency pairs, they are trading Forex. Each currency of the pair is constantly in a price struggle with another currency. The exchange rate to another currency varies according to the relative strengths of the two currencies at the time of trade.

In trade, there are two currencies against each other. For example, if you are trading the British pound against the US dollar, it will be displayed as GBP/USD, where the price reflects the relative strength of the two currencies, expressed as the amount of US dollars required to buy 1 unit of GBP.

Major Currency Pairs in Forex

"Major Currency Pairs" is the term for the leading currencies freely traded around the world and consists of the 7 major currencies and their relative prices against the US dollar. The major currency pairs are the most liquid and most often traded by forex day traders.

Why is Chinese Currency Not Traded in Forex

You may be wondering why the Chinese currency is not listed in the major currency pairs, mainly because it is not freely traded. However, most forex brokers allow you to trade Chinese currency. The Renminbi is the official currency of the People's Republic of China.

Renminbi is translated as "people's money" and its international symbol is the yuan with the symbol ¥. Oddly enough, you will also see the CNY symbol for the Chinese Yuan. The reason for this is that the units of the yuan (dollars and cents, if you will) are the yuan and jiao, and as a result, the currency is also often referred to as the Chinese yuan, abbreviated as CNY.

Cross Currency Definition & Example

Currency pairs that do not include the US dollar are called cross-currency pairs or crosses. Some people also call them minors. There are three main cross currency pairs - Euro, Pound and Yen.

Euro Crosses

Pound Crosses

Yen Crosses

Other Crosses

What are Exotic Currency Pairs

Emerging Market Currencies

There are also currency pairs that consist of developing country currencies. When you pair a major currency with an emerging currency, it's called an exotic currency pair. Some brokers do not offer exotic currency pairs, but if they do, there are usually higher transaction costs and the spread between the Bid and Ask prices can be wider.

Other Crosses

Price

The more often you trade, the more familiar you become with the trading ranges of the pairs, so you train your mind to quickly understand the changes in the prices of your trading pairs and be able to quickly assess where the price is in the range.

To get this, you first need to understand how to read the price of a currency. If you want to buy 1 Euro, you need to know how much other currency you will have to pay for it.

Examples of Exotic Currency Pairs

For example:
EUR/USD 1.1250

This example says that 1 euro can be bought for 1.125 US dollars. This means the average price of buying and selling at a given time. It is often referred to as the average price because it is halfway between the buy and sell prices.

Remember that you still have to work with the BID ASK spread, which is the fee you have to pay to buy or sell a currency. For major currency pairs, the BID/ASK spread is usually very low, but during times when the price fluctuates widely, brokers often widen the spread to protect their positions.

• There are several aspects that affect the market such as hour of the day, day of the week, season.
• But the biggest factor affecting pricing is the release of economic news.

News events disrupt markets' assessment of the relative strength of currencies. When this happens, the quoted price can move up or down significantly in a matter of seconds.

For this reason, as you become more experienced, you will only pay attention to a few pairs, and keep an eye on the economic calendar provided by your broker to be prepared for upcoming events that can have a significant impact on your trading.

What is Pip in Forex

PIP is an abbreviation of Point In Percentage, and is a very small measure of change in a currency pair. When talking about Pips traders are referring to the last decimal place of a quote. So that if the EUR/USD moves from 1.1250 to 1.1270 we would say it has moved 20 pips.

You will note that most currency pairs are quoted to four decimal places and pips are measured in that last decimal place. But some pairs, like Japanese Yen, are only quoted to two decimal places. Where the pair is quoted in 2 decimal places then a pip again refers to the last decimal place.

Pip Example

Another term is pipette. These are fractional pips and are used when the broker quotes currency pairs that have more than four decimal places.

Thus, if EUR/USD is at 1.25548 and there is an increase of 2 pipettes, then the pair will be at 1.25550. Thus, the fifth decimal digit in the platform represents pipettes.

While brokers almost always do these calculations for you, it's helpful to know how to calculate pip value for each currency pair you want to trade in case of a discrepancy.

What is Pip Value

The value of a pip is determined by the currency pair being traded, the trade size, and the exchange rate of the currency pair.

So, to calculate the value of a pip, divide one pip (usually 0.0001) by the current market value of the currency pair. Then multiply this figure by the lot size, which is the number of base units you are trading. This means that the value of a pip will vary between currency pairs due to exchange rate fluctuations.

When the quote currency is USD, the pip value is always the same - if the lot size is 100,000, the pip will be equal to $10.

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