Currency Crosses and Pairs

As a beginner, you have to learn about different forex terms. I know it’s boring, but hey, gotta learn to earn. 

Of these terms, two lie at the core; forex pairs and crosses. In the forex market, you trade pairs rather than single currencies. On the other hand, crosses are pairs that don’t include USD.  

Let’s jump into today’s guide and see what pairs and crosses are.

What are currency pairs?

Currency pairs are like dance partners who never leave each other’s side on the Forex dance floor. They come in various combinations, just like the fashion choices at a costume party. You’ve got pairs like EUR/USD, GBP/JPY, AUD/CAD, and much more. 

Now, here’s where it gets interesting. In each currency pair, you’ve got a dominant dancer. In forex terms, the dominant dancer is called the base currency, while the follower is known as the quote currency.

Let’s say you have the EUR/USD currency pair. EUR is the base currency, while USD plays the role of the quote currency.

Regarding base and quote, each currency pair is denoted in bid/ask prices. The bid price represents the price the market participants (buyers) are willing to purchase the currency pair. 

Conversely, the ask price is the price at which the market participants (sellers) are willing to sell the currency pair.

Now, the difference between the bid and ask prices is the spread. 

So, let’s say you’re looking at a currency pair like EUR/USD, where the bid price is 1.1000, and the ask price is 1.1005. The base currency here is the EUR, which sets the bid and ask prices. The quote currency, USD, follows along. And the spread, in this case, is 0.0005 or 5 pips, representing the gap between the bid and ask prices.

Types of currency pairs

When it comes to currency pairs, there’s a whole bunch of them, each with its quirks and characteristics. 

Let’s explore the different types of currency pairs you’re likely to encounter in the forex market:

Major Pairs

These superstar pairs hog the spotlight and attract the most attention. We’re discussing heavyweights like EUR/USD, GBP/USD, USD/JPY, and USD/CHF. They involve major global currencies and are known for their high liquidity and tight spreads. 

Minor Pairs (or Crosses)

These pairs don’t have the same star power as the majors, but they still know how to bust a move. Minor pairs, also known as crosses, don’t include the mighty USD. Instead, they pair up two major currencies: EUR/GBP, AUD/CAD, or NZD/JPY. 

Exotic Pairs

Now, things are getting a little spicy! Exotic pairs involve a major currency paired with a currency from an emerging or less frequently traded economy. We’re discussing pairs like USD/TRY, EUR/TRY, or USD/ZAR. These pairs are known for their higher volatility and wider spreads. 

What are currency crosses?

We touched crosses in the previous section but let’s hone in on them in detail here. 

Currency crosses, also known as cross currency pairs, are forex pairs that don’t involve the USD as the base or quote currency. 

Instead, they directly pair up two major currencies, EUR/GBP, AUD/JPY, or CAD/CHF. These pairs are like the renegades who prefer to dance to their beat without relying on the USD as their dance partner.

What do you need to know? 

Trading currency crosses requires a good understanding of each currency’s fundamental factors and their interplay. Economic indicators, geopolitical events, and central bank policies can all impact the moves of these currency pairs.

Final thoughts

Currency crosses, and pairs are the lifeblood of the forex market, and you have to understand them to navigate the market. 

You need to know what affects these pairs and how to successfully trade them.

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