Currency pairs are a mechanism that compares two separate countries’ currencies against one another. The relationship between the two currencies is inverse, which means that, if one goes up, the other must go down.
Why Were Currency Pairs Created?
Currency pairs allow the foreign exchange market to decide which currency is stronger based on technical indicators and fundamental analysis. Moreover, it determines the exchange rate at any given time. For example, not too long ago Greece got in major trouble with debt which meant lots of borrowing and a weaker economy. Generally, when one country is in trouble, economically, the country’s currency is losing strength consistently.
Even without Forex trading, the currency exchange market will still exist. Commerce, Tourism, Investing are just a few reasons that there will always be a need for the exchange of money. Forex is a huge market affected by many different factors which is why traders enjoy being a small player in a big game.
Here are some of the main currency pairs that also have the high trading volumes.
Make Currency Pairs Work for You
In my experience trading, I have found that currency pairs with one common currency (USDCAD & USDJPY or EURUSD & EURGBP) will often carry the same trends. For example, a large negative report for USD can cause the currency pairs to move almost identically in USDCAD & USDJPY, which means you can confirm trends and possible opportunities by taking a look at multiple currency crosses in the same basket.*
*Currency cross is the same as a currency pair. [Currency] basket is a group of all crosses/pairs that are tied to a specific currency. USD basket would include: USDJPY, USDCAD, EURUSD, AUDUSD, GBPUSD, NZDUSD, etc.
Consider this Idea
Lastly, if you are the type that likes to trade on fundamental news and notice that GBPUSD only has 30 pips until its next major resistance/support level, try taking a look at another currency pair. Maybe you will find that GBPJPY or another GBP cross has more space until the next major resistance/support level. When in doubt, it pays to double-check.