An overview of currency couples
Understanding that Forex is the exchange of one currency’s value for another, trading is generally done in pairs; i.e. currency couples or currency pairs. A currency pair is defined by the value of the one currency relative to the other, the base currency versus the quote currency. It is a known fact that America plays a huge role in economic activity across the globe, and that it is one of the leading import and export countries in the world. Because of this, the US Dollar (USD) is a key player in Forex because it enables international trade and investment opportunities.
Popular currency couples
When deciding which currency couple to choose, experts advise taking several factors into consideration. These include liquidity, your trading hours, stability and predictability. In most cases, traders generally prefer to select pairs that are liquid, which refers to how easily you can buy and sell. Although the Forex market is open 24/7, not all trading areas are operational at the same time, which is why it is important to select a couple whose active times coincide with the hours you dedicate to trading. The stability and predictability of a currency couple are generally determined by the economic activity and strength of the countries and their currencies. This is why the EUR/USD couple is often touted as the best; these two economies are major contributors to global trade and economic activity. Below are some of the other top currency couples that remain of interest to major Forex brokers in the US and the world at large.
Currency couples are categorized as either majors, minors, or crosses. Majors consist of the USD; minors do not consist of the USD but do consist of one of the other major currencies, such as the Euro; and crosses are characterized by non-USD currencies.
Said to be the most traded pair in the world, the European Euro and US Dollar couple is characterized by high liquidity, low spreads, and historic stability; it is further backed by two of the largest economies in the world.
Dubbed “The Gopher,” the USD and Japanese Yen couple is similar to the above-mentioned couple because of its liquidity and tight spreads. Considering that the USD is considered the international reserve currency, meaning that it is largely accepted for international trade, the strength of this couple is not surprising.
The British Pound Sterling (GBP) and USD couple’s performance is said to be popular amongst day traders because of its volatility, making it prone to fluctuations throughout the day. As such, this gives day traders the opportunity to truly profit from favourable conditions. However, this could also mean great losses if the trader misses out on a potentially lucrative fluctuation.
This couple is considered a minor because of the fact that it is not inclusive of the USD, however, it does consist of one of the major currencies, namely the Euro. This makes it a relatively less competitive couple on the market.
The Australian Dollar (AUD) and USD couple is said to negatively correlate with the USD/CAD, USD/CHF and USD/JPY pairings. Besides the impact of the American economy and trading activity, it is also affected by some of the key commodities that are exported by Australia, such as iron ore, gold and coal.