Broaden Your Trader Dictionary With These Must-Know Terms

Yesterday we talked about forex trading strategies. I explained technical and fundamental analysis and emphasized how important it is to do your own research, and to look at patterns and charts. 

Today let’s talk about some of those patterns, charts and some basic terminology that goes along with forex trading. 

Currency Pairs

The entire forex trading system is built on currency pairs. The base currency goes first and the quote currency goes second.

For instance, the most popular currency pair in the world is the euro and the U.S. dollar. 

In this case, the currency pair would look like one of these:

  1. EURUSD
  2. EUR/USD

Either way, the euro is the base currency and the U.S. dollar is the quote currency.

Major Pairs

Major pairs are the most commonly traded pairs on the forex market exchange. They consist of EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD and USD/CAD. These pairs are responsible for about 85% of market activity.

They’re also the most liquid trades because of their high volume. If you plan to trade on these currency pairs, you have to pay careful attention to technical and fundamental analysis.

Cross-Currency Pairs

A cross-country pair is simply a currency pair that doesn’t involve the U.S. dollar. In other words, there’s no need to exchange the currency into U.S. dollars to compete the transaction.

Exotic Currency Pairs

As the name implies, exotic currency pairs refer to rare pairs that are rarely traded on the FX exchange. Exotics can change over time as pairs fall into and out of favor based on economic conditions and other factors.

For instance, EUR/TRY is considered an exotic. It’s the euro as the base and the Turkish lira as the quote.

Many exotics include the U.S. dollar, such as USD/DKK (the Danish krone as the quote currency) and USD/THB (with the Thailand baht as the quote).

When it comes to exotic currency pairs, you’ll want to pay attention to macroeconomic factors. For instance, what does supply and demand look like? How are the countries faring in terms of international relations?

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