Trading Currency Pairs

The trading of currency pairs, or trading forex as it is more commonly known, is the buying and selling of currency against another. These currency pairs are set in a particular order and broken down into three groups, the major currency pairs, the minor currency pairs and the exotic currency pairs. For this article I am going to concentrate on the major currency pairs as these are the ones most traded on the forex market.

The major currency pairs consist of AUD/USD, Australian Dollar against the U.S Dollar, the EUR/USD Euro against the U.S. Dollar, the GBP/USD British pound against the U.S. Dollar, the USD/CAD the U.S. Dollar against the Canadian Dollar, USD/CHF the U.S. Dollar against the Swiss Franc and finally USD/JPY the U.S Dollar against the Japanese Yen. There are a few others that are considered to be major currency pairs such as GBP/EUR and EUR/JPY but they are not as traded as the above six major currency pairs.

You will notice that all these currency pairs are against the dollar therefore the charts tend to move in unity. It is important to have your charts set up in the order as above with the AUD/USD, EUR/USD, GBP/USD being your top three charts and then USD/CAD, USD/CHF, USD/JPY directly underneath. When you have this initial setup you can see that the top three charts will tend to move in the same direction and the bottom three charts will move in the opposite direction almost mirroring each other. The EUR/USD and the USD/CHF are the best example of this arrangement as they nearly always mirror each other exactly and it is for this reason when trading one of these currency pairs that we take its mirroring currency pair into consideration.

I would like to focus particularly on two of the currency pairs for beginners to be aware of, the GBP/USD and the USD/JPY. The reason I bring attention to these is because although the GBP/USD (also known as the cable) is the most traded of all the currency pairs it is also the most volatile and should be handled with extreme caution. It is not uncommon for the GBP/USD to be trending in one direction quite nicely and to then randomly pull a reversal of trend in for 20-50 pips then continue in its original direction. Something one should consider when setting stop loss points. It is recommended when first starting out in currency trading to watch this currency pair closely and get to know its habits before trading it. Once mastered you will find it very profitable.

I also wanted to draw attention to the USD/JPY for a beginner's currency pair as it is what I like to call a smooth moving currency. It tends to move up and down in nice easy to follow trends. Although it can be one of the slowest moving currency pairs it is one of the safest ones to trade and I would recommend it when first starting out. The other advantage with the Japanese Yen is when there is a release of economic data, which has a reaction of volatility on the forex market; the USD/JPY seems to trend more smoothly than the other currency pairs that can jump around very vigorously.