Different types of currency pairs


In the forex market, most traders use US dollars on one side or the other for their trades. The other currency pairs used in trades are crosses such as EURCAD, AUDJPY, NZDJPY and others. You can trade any two currencies against each other, but the main forex market consists of certain pairs. Before you start trading currencies, it's best to learn about the types of currency pairs in detail. You can visit reliable sources of financial information, such as https://exnessgroup.org/login-exness/, for the latest news on trading, as well as currency trading tips. 

Types of currency pairs you need to know about before you start trading:

Highly liquid pairs

These are the majors. The most important and most liquid pairs are EURUSD, GBPUSD, USDJPY, AUDUSD, EURGBP and USDCAD.

Less liquid pairs

These pairs are important but less liquid. These are EURJPY, USDCHF, USDMXN, ZDUSD, EURCHF and USDZAR. 

Common crosses

These pairs are created by combining two major pairs. For example, the AUDJPY is a combination of AUDUSD and USDJPY. Since they are not really tradable pairs, the liquidity of cross traders is not as good. Note that some very popular crosses such as AUDJPY and EURCAD do have some direct liquidity on some platforms. Common crosses are EURAUD, GBPJPY, EURCAD, AUDCAD, GBPCHF, AUDJPY, NZDJPY, CADJPY and CADCHF. 

Illiquid pairs

These pairs are illiquid and tend to be less interesting and less profitable to trade as they incur higher transaction costs. As a short-term trader, you should stay away from these pairs. If you take a multi-day view, you may sometimes find these pairs profitable, but for most short-term currency traders, 90 % of the profits are on liquid pairs, not on them. These pairs are USDRUB, USDSGD, EURSEK, EURNOK, EURPLN, USDTRY, USDCNH, AUDNZD, XAUUSD, NOKSEK and EURCZK.

There are other currency pairs, but this list covers the ones you need to know about as a trader. For example, pairs such as USDHKD and EURDKK offer close to zero profit potential because they are managed by central banks and exhibit extremely low volatility.

Any other currency pair can be triangulated from the pairs above. For example, there is no direct market for the BSEK. So, if you want to buy this pair, you need to buy EURSEK and sell EURCHF in equal amounts. Some ECNs offer liquidity in less liquid pairs such as CADJPY, but this liquidity is usually still triangulated from the primary pairs; in this case USDCAD and USDJPY. So, if you trade CADJPY, you are essentially trading USDCAD and USDJPY. Note that primary currency pairs are much more liquid than non-tradable pairs. Therefore, you will notice that your transaction costs will be higher as you move out of the range, from actively traded primary pairs such as EURUSD and USDJPY, to tertiary, non-tradable crosses such as GBPNZD or CADNOK.

Is gold a currency?

You may have noticed earlier that XAUUSD is included in illiquid pairs. XAU is the three-letter code for gold. Gold is traded on EBS, one of the major electronic brokerage systems in the foreign exchange market; and is often considered a currency. There is some debate as to whether it is indeed a currency. However, if it is not a currency, it is certainly close to one. The debate is predominantly of a semantic nature. You can say that gold is somewhere in the range, a currency/commodity hybrid. For practical purposes you can think of gold as an illiquid currency that can be crossed with other currencies. XAUJPY or EURXAU are perfectly reasonable crosses to think about, although you will usually find that the liquidity is so low that they are not worth trading.

If you want to trade currency pairs, take a look at the list of the most stable currencies over the years, and research the current market as financial events can affect currency price movements.

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