Forex currency pairs: characteristics and features of trading

Forex currency pairs: characteristics and features of trading
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The main financial asset in the Forex market are currency pairs. The term "currency pair" means the ratio of the traded currency to the quoted one.

The term greatly simplifies communication, because instead of saying “I bought the euro for the Swiss franc” or “I sold the US dollar for the Canadian”, traders use the short phrase “bought EUR/CHF” or “sold USD/CAD”.

Currencies that form a pair have their own designation and are written through a slash or together. The first is the base currency, which is sold or bought, that is, it is a commodity, and the second is the quoted one, which is the money paid for the “commodity”.

What pairs are suitable for a beginner?

For beginners who have come to the Forex market, when choosing an asset, it is important to take into account its liquidity, volatility and predictability. It is important not to go to extremes and not try to trade everything at once.

At the initial stage, it is best to choose low-volatility pairs with increased liquidity, that is, to work with calm and easily predictable currencies.

It is best for beginners to start with pairs that have a dollar in their composition:

You can switch to exotics only after the beginner learns how to profitably trade on the main assets.

Decryption of currency pairs

The order of displaying currencies in a pair is established by a special organization ISO. In accordance with its directive, the first currency in the pair is the base one, it is the main one, it is the trader who buys it for the second or quoted currency.

For example, in the USD/JPY pair, the Japanese yen buys the euro.

In order not to write long names of national currencies, each of them is assigned a three-digit letter code.

We list the decoding of the ISO designations of the most popular currencies from which currency pairs are formed:

  • USD, AUD, NZD, CAD - American, Australian, New Zealand, Canadian dollars;
  • EUR - euro;
  • GBP - pounds;
  • CHF - Swiss franc;
  • JPY - Japanese yen.

Major currency pairs

These are the assets that are most often traded on international financial exchanges. They are predictable and resistant to market fluctuations. All major pairs include the USD, which is not unreasonably considered the strongest currency.

The United States has one of the largest economies in the world, which makes its national currency the most preferred for most exchange transactions on the world exchange. In addition, the US currency is the main reserve asset.

There are 6 main pairs:

  • euro/dollar (EUR/USD);
  • dollar/yen (EUR/JPY);
  • pound/dollar (GBP/USD);
  • dollar/Swiss franc (USD/CHF);
  • Australian dollar/dollar (AUD/USD);
  • dollar/Canadian dollar (USD/CAD).

The difference between currency pairs in practice

How can currency pairs differ in trading? All pairs move differently, but each of them has its own predictable "handwriting", knowing which - you can build a trading system based on certain patterns.

calm couples

Calm assets are assets with low volatility, the value of which changes within a narrow corridor. They are also called flat. You cannot make money on such assets quickly, since they do not make sharp jumps and price reversals.

Transactions on calm pairs are concluded for the medium and long term.

It is important to understand that even calm assets can jump against the trend, especially during the release of important publications.

Most often, these are pairs that include the Australian dollar:

  1. AUD/NZD. The reason for the calmness of this pair is that the currencies included in it are influenced by the same criteria. This reduces the likelihood of a sharp reversal of an established trend. The pair is characterized by a relatively high dynamism, during the day it can fluctuate within 100 points, and the spread reaches 20 - 30 points;
  2. AUD/DKK. This is an exotic pair, so the spread for it will be around 30 pips. A positive feature is that it is very stable, a well-established trend can last for about several weeks;
  3. EUR/AUD. A relatively calm instrument, which has price jumps more often than the previous ones, but at the same time, it is characterized by narrower spreads of 5-10 points.

The most predictable couples

Pairs are called predictable, the movement of which lends itself best to analysis. There are several assets that even beginners can work with after learning the basics of market analysis:

  1. EUR/GBP. The pair is forming a clear trend. If support/resistance levels are broken, then most often the current trend changes, which allows the trader to work in the direction of the new trend. Both currencies included in the asset are influenced by the same news, which explains the predictability of the asset as a whole;
  2. USD/CHF. This is a less predictable pair, but after the National Bank of Switzerland abandoned the policy of introducing foreign exchange interventions to regulate the exchange rate of the national currency, the movement of the pair became more even and understandable. Trends, flats and channel breakdown are clearly visible on the chart;
  3. AUD/USD. To predict the Aussie rate, you need to follow the Australian economy. It is quite isolated, therefore, when it strengthens, the exchange rate of the currency pair will undoubtedly grow. Its behavior is easy to predict with the help of the economic calendar, as the pair actively reacts to the release of fundamental data. The strongest movements in the pair are observed during the Pacific session;
  4. GBP/USD. A rather volatile pair, which can be used to observe strong price movements. It is best to trade it inside the channel using trending strategies. Stop loss and take profit should be placed as far as possible from the opening price of the position;
  5. EUR/USD. The most demanded asset, which lends itself well to fundamental and technical analysis. It is suitable for scalpers, medium and long term trading.

Pairs for scalping

Scalpers trade at short distances, so when choosing an asset, they prefer financial instruments with high volatility and a minimum floating spread.

Each broker independently sets the spread size, for scalping you need to choose pairs with a spread of no more than 3 points, usually these include:

  • GBP/USD;
  • USD/JPY;
  • AUD/USD;
  • EUR/USD;
  • EUR/JPY;
  • USD/CHF.

It is important for a scalper that the price of a currency pair does not stand still, but moves at least 50 points per trading day. The greater the volatility of a pair, the more a trader can earn on it in a short period of time.

Highly volatile pairs include GBP/CHF, USD/CHF, GBP/JPY, EUR/USD, GBP/USD.

As for the floating spread, in some market phases it can drop to a few tenths of a point. Scalpers should take every opportunity to cut costs on each individual trade.

The currency pairs EUR/USD, USD/CHF, GBP/USD correspond to all the listed requirements of scalpers, but it is better not to scalp with the pair USD/JPY, EUR/JPY, despite the high volatility, since this is associated with unjustified risks.

At night and in the evening, USD/CAD, AUD/USD are more suitable for scalping.

Mirror couples

Pairs of currencies that move in diametrically different directions are called inversely correlated or mirror.

An example is the assets of EUR/USD and USD/CAD, EUR/USD and USD/CHF, AUD/USD and USD/JPY. If you carefully monitor their charts, you will notice that with the growth of the first pair, the value of the second falls, and vice versa.

In the Forex market, the correlation of mirror financial instruments is used as a trending technical tool, especially when one of the assets is ahead of the other in time.

Also, the feature of the movement of mirror assets is used to hedge losing trades in order to reduce risks and wait out the trend correction.

Most Popular Couples

The more popular the asset, the higher its liquidity and the lower the spreads. In addition, popular assets are easily predicted, which almost always provides a trader with income. The most popular are the main currency pairs or the so-called "majors". They include the main national currencies of the world.

According to statistics, from 20 to 30% of all transactions concluded in the Forex market, falls on EUR/USD. About 15% orders are in GBP/USD. USD/CHF, despite its minimal volatility, is popular among traders due to its maximum liquidity.

Despite the fact that USD/JPY is not suitable for beginners due to its unpredictability, this pair is quite in demand among experienced traders, and it accounts for up to 15% of trades. Next in descending order are USD/CAD, AUD/USD, EUR/JPY, EUR/GBP.

Trend Pairs

Each trading session is characterized by its own trend currency pairs, which have the maximum volatility at this particular time.

For example, the following pairs will be the most active in Asian trading:

  • GBP/JPY. Quotation fluctuations in Asian trading can reach up to 110 points, up to a maximum of 300;
  • GBP/CHF. The price moves within 95 points;
  • USD/JPY. Price fluctuation is noted in the region of 80 points;
  • EUR/JPY. Traded rarely in the Asian session due to the small number of suitable opportunities.

The following currency pairs will be trending during the European trading session:

  • GBP/CHF. The price per session is about 150 points;
  • GBP/JPY. The pair passes only 5-10 pp less than the previous asset;
  • USD/CHF. The price moves in the range of 115 - 117 points;
  • GBP/USD. The value of the asset for the session passes the mark of 112 pp;
  • EUR/USD. Its volatility ranges from 95 to 96 pp.

For American trades, the trend pairs are GBP/CHF, GBP/JPY, USD/CHF, which can go through 129, 119 and 107 points, respectively, during the work.

Pairs with a small spread

Spread is the commission that each trader pays when creating orders in the Forex market. The less risky an asset is, the lower the spread for it is set by the broker.

The spread value is especially important for traders who use the scalping strategy or pipsing. Brokers offer the lowest spreads for currency pairs that include the US dollar:

  • EUR/USD: fixed spread from 1 - 3 pp, floating - from 0.1 pp;
  • USD/JPY: fixed - 2 pp, floating - from 0.2 pp;
  • USD/CAD: fixed - from 2 pp, floating - from 0.2;
  • GBP/USD: fixed - from 2, floating - 0.5.

Also, a fixed spread from 2 to 3 pp and a floating spread from 0.3 to 0.5 pp are provided by brokers for the AUD/USD, EUR/GBP, EUR/CHF, USD/CHF currency pairs.

Most Volatile Pairs

Volatility - this concept is volatile, and bursts of volatility and its subsidence occur in every currency pair. This indicator depends on the liquidity of the asset.

Low-liquid exotic currency pairs are considered the most volatile, while assets with high liquidity are considered low-volatility. Also, any currency pair may experience volatility during periods of important economic news.

If you follow the movement of the price chart for currency pairs throughout the trading day, the most volatile are the exotics - USD/SEK, USD/BRL, USD/DKK. Their price for one auction can fluctuate within 400 pp.

At the same time, the main currency pairs will be the least volatile.

The best currency pairs

There are over 200 official currencies in the world, and for a trader, the best of them will not necessarily be the main or the most volatile. The best asset is the one whose trading provides the trader with the maximum profit.

When choosing a pair, it is important to take into account the experience of the trader. So for beginners, the main currency pairs, which include the United States dollar, Australia, Canada, the euro, the British pound and the Swiss franc, are more suitable.

Traders who prefer a nocturnal lifestyle are better off choosing pairs that are active in Asian trading. And for those who have sufficient experience in trading, exotic assets can bring more profit.

In what sessions is each pair traded?

The Forex market works around the clock, since all operations on it are conducted online, but its operating time is conditionally divided into 3 main trading sessions, each of which is characterized by its own chart and activity of certain currency pairs:

Asian. The Tokyo, Hong Kong and Singapore exchanges take part in it. Also this session includes the influential economic centers of Sydney. At this time, the Japanese yen and all pairs containing it are actively traded: USD/JPY, EUR/JPY, GBP/JPY. Pairs that include the Australian dollar are quite active in this session: AUD/USD, AUD/JPY, AUD/NZD, EUR/AUD.

European. This is the time of activity of the London, Frankfurt, Paris and Moscow trading exchanges. This session affects the exchange rate more than others, since the main capital is concentrated in European countries, especially when it comes to EUR or any pair containing this currency.

American. The beginning of the session falls on the second half of European trading. Due to the imposition of one session on another, the overall activity of players in the market increases.

Such an overlay lasts an average of 3-4 hours. At this time, economic centers are active not only in the USA, but also in Canada and Brazil. Attention is paid to pairs that include the US dollar.

Time of volatility of currency pairs

The volatility of assets depends on the time of day, or rather on the mode of operation of various trading sessions:

  • Asian. Works from 3 am to 12 noon Moscow time. At this time, GBPCHF and GBPJPY are the most active. Their price can go up to 100 pp. The EURGBP pair is less volatile during this period, the price spread of which can be no more than 25 pp.
  • European. Opening hours according to Moscow time from 9 am to 6 pm. More than 140 pips during this period can pass the pairs GBP/CHF, GBP/JPY. Scalpers can profit from trading EUR/USD, EUR/RUB, USD/CAD, GBP/USD. For long-term trend trading, you can choose AUD/USD, EUR/CHF.
  • American. From 4 pm to 1 am GBP/CHF, GBP/JPY pairs will be the most volatile. At this time, they pass over 120 points. Certain activity is also observed in EUR/USD, USD/CAD, GBP/USD, USD/CHF.

How to choose a currency pair for trading?

When choosing an asset, especially newbie several factors are taken into account:

1. Asset volatility. More active pairs should be chosen by traders who have strategies designed for sharp price fluctuations. Most participants in the trading process prefer calm assets, when working with which there is less chance of a quick loss of a deposit.

2. Time of maximum activity. The same currency pair can behave differently depending on the trading session. If a trader lives in Europe and works during the daytime, it is better for him to choose assets that have maximum volatility during the European and American trading sessions. If he is a “night owl”, then he can choose currency pairs that are active in Asian trading.

3. Ability to analyze the movement of quotes. A trader must know the features of the currencies that make up the pair, understand the processes that affect the direction of movement of the value of an asset.

4. Spread. This is a particularly important condition when choosing an asset for scalpers and pipsers.

What are the best pairs to trade?

You need to choose the asset that is completely understandable to the trader. He must know all the features of the currencies included in the pair, understand the principle of its price movement and know the factors that affect the rate.

In addition, a trader must be able to analyze the selected pair. Also, when choosing, the volatility of the asset and the size of the spread charged by the broker when concluding a deal on this currency pair are taken into account.

It is best for beginners to start by trading the major pairs. After they learn how to make a profit on these assets, they can switch to USD/CAD, AUD/USD, NZD/USD, when trading which you need to take into account many economic indicators.

When trading these assets begins to bring systematic profit, you can switch to working with cross pairs.

On average, this will take 1-2 years. Only with the acquisition of solid experience can one switch to trading in exotics, petroleum products and precious metals. At the same time, it is recommended to trade no more than 1 - 3 pairs of currencies.

The logic of the movement of trading pairs

The movement of assets can be simultaneously influenced by many criteria, knowledge and consideration of which will help the trader as a whole to understand the logic of the Forex market.

First of all, the movement of assets is influenced by the decisions of central banks and international funds in the field of credit and financial policy in relation to the currencies included in the pair. The central banks themselves do not control quotes, but they are influenced by the amount of capital circulating in society.

Also, the asset rate is influenced by news of an economic nature, the publication of macroeconomic indicators of the state of economies in different countries, especially in the USA, Japan and the European Union.

Currency interventions carried out by the central banks of different countries help to correct the course in the right direction, but the effect of such actions is short-term and insignificant.

Which pairs move in the same direction?

There is a direct correlation between assets that move in the same direction.

The strongest correlation, regardless of the time range, is observed between the EUR/USD and GBP/USD pairs. If the cost of one of the pairs changes direction, then with a probability of 80 - 90% the other pair will go in the same direction, deviating only by 10 - 20%.

There are other pairs moving with EUR/USD and GBP/USD, but they create a different price chart pattern and have different swing amplitudes. For example: EUR/USD, AUD/USD, NZD/JPY, etc.

Correlation of currency pairs

Correlation in Forex determines the synchronism of the movement of currency pairs. The higher this indicator, the greater the synchronism of assets. With an inverse correlation, the movement of pairs will be synchronous, but in different directions.

Examples are the euro/dollar and the dollar/Swiss franc.

The occurrence of correlation in Forex is due to a small number of currencies that make up the asset. For example, in EUR/JPY and AUD/JPY pairs, the source of correlation is the Japanese yen included in them. If it strengthens, then both pairs will move synchronously.

The source of correlation for almost all pairs is the US dollar.

Most of them begin to rise or fall with the corresponding movement of the US currency. Even those pairs that do not contain this currency are directly or inversely correlated to the USD.

Forex currency pairs can correlate with each other when they contain the same currencies. They also correlate with indices and commodity assets.

Pip price for currency pairs

Calculation of the cost of 1 pip for any currency pair is carried out according to the formula:

Price per point = (Pip Size*Lot Size)/Market Value.

Let's say a trader opened an account in US currency. The trade volume is 10,000 (0.01 lots). The USD/JPY currency pair was chosen as the underlying asset.

Let's assume that the value of the pair at the current moment is 114.3, then, based on the formula, the cost of one point = 0.01*10000/114.3=0.8749. This is the cost of 1 pip in the deposit currency.

The price of a point is a dynamic value, since the current value of an asset never stands still, and the size of a point can be different for different currency pairs. To quickly calculate the current price of a point, you can use special calculators.

What currency pairs are best for beginners to trade?

For a novice trader, it is best to initially choose the EUR/USD or USD/JPY pairs as the underlying asset. They are easy to predict, so there are many effective and low-risk strategies with their participation.

It is recommended for a beginner to trade on major currencies for at least a few years, only after that it makes sense to try your hand at cross rates. You can switch to them only after all the factors affecting each of the currencies included in them are studied.

With sufficient experience and financial capabilities, you can start trading exotic pairs or precious metals.

How to add a currency pair in metatrader 4?

If access to the Forex market is provided through the MetaTrader 4 trading terminal, traders may need to add a currency pair to the list of assets available for trading.

To do this, launch the terminal, click on the "Symbols" panel. Also, the list of available assets is displayed after pressing the key combination Ctrl+U. After that, the “FCMT4” catalog will appear on the screen, it presents various groups of assets:

  • FX Majors;
  • Metal Spot;
  • FXRU;
  • FX Crosses;
  • FX Exotics, etc.

Find the required group of assets, click on it, select the desired currency pair from the drop-down list, and then click the "Show" button on the right.

After that, the selected asset will become available in the Market Watch menu. In the same way, you can add not only one currency pair, but a whole group of assets.

It is not recommended to add a large number of currency pairs at once, so as not to increase traffic and overload the computer device.

To prevent the platform from freezing and slowing down, only those currency pairs that are involved in the trading strategy are installed in the terminal.

Is it possible to arbitrage currency pairs?

In financial markets, the arbitrage strategy is used to hedge risks. The basic principle is to make insurance deals in the opposite direction to the main trades.

In the Forex market, the tactic of "triangular arbitrage" is often used, when 3 currency pairs are taken, the movement of which depends on three assets.

For example: EUR/USD, AUD/USD, EUR/AUD. Knowing the quotes of 2 representatives, the value of the third pair is easily calculated, for this one indicator is divided by another.

You need to apply currency arbitrage at the moment when 2 of the selected pairs begin to move randomly, and the third almost completely freezes in place.

In practice, only very experienced traders are able to carry out independent calculations, the rest use ready-made indicators for currency arbitrage for this.

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