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Forex currency symbols and pairs explained definition

forex currency symbols and pairs explained definition

Forex pairs explained. Currencies are always traded in pairs because when you buy or sell one currency, you automatically sell or buy another. A three-letter symbol that represents a specific currency. For example, USD (US dollar). Search the Academy. In summary, major forex pairs are the most frequently traded currency pairs within the forex market. If you are interested in opening a live or demo account to. JOSEF NADRCHAL INVESTING IN SILVER

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Diversify risk Understanding the correlations also allows an investor to trade different currency pairs. Instead of trading only one currency pair, you can spread risk by trading two pairs that move the same way. For example, a trader may consider pairs that have a strong or very strong correlation around 0.

The correlation of these two currency pairs gives you the opportunity to diversify, which helps reduce risk. In the event that the US dollar is on the rise, the euro could be affected to a lesser extent than the pound.

Hedging risk Although hedging can cause the trader to make lower profits, it can also help minimize losses. Despite all this, coverage has some downsides. Also, the correlation can weaken at any time. So be careful what you cover. When trading currencies, you're selling one currency to buy another. Conversely, when trading commodities or stocks, you're using cash to buy a unit of that commodity or a number of shares of a particular stock.

Economic data relating to currency pairs, such as interest rates and economic growth or gross domestic product GDP , affect the prices of a trading pair. Major Currency Pairs A widely traded currency pair is the euro against the U.

In fact, it is the most liquid currency pair in the world because it is the most heavily traded. This means that 1 euro can be exchanged for 1. There are as many currency pairs as there are currencies in the world. The total number of currency pairs that exist changes as currencies come and go. All currency pairs are categorized according to the volume that is traded on a daily basis for a pair.

The currencies that trade the most volume against the U. The major currency pairs tend to have the most liquid markets and trade 24 hours a day Monday through Thursday. The currency markets open on Sunday night and close on Friday at 5 p. Eastern time. These pairs have slightly wider spreads and are not as liquid as the majors, but they are sufficiently liquid markets nonetheless.

The crosses that trade the most volume are among the currency pairs in which the individual currencies are also majors. Exotic currency pairs include currencies of emerging markets. These pairs are not as liquid, and the spreads are much wider. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

We also reference original research from other reputable publishers where appropriate.

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Currency Pairs Explained (Video 2 of 13)

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