Forex pairs, also known as currency pairs, are the fundamental building blocks of the forex market. They are the two currencies that are being traded against each other in a forex transaction. One of the most popular platforms for forex trading is Oanda, which offers a range of currency pairs. In this article, we will explore what forex pairs are, how they work, and the different types of forex pairs available on Oanda.
What are Forex Pairs?
Forex pairs are essentially the exchange rate between two currencies. They are used to determine the value of one currency in relation to another. For example, the EUR/USD forex pair represents the exchange rate between the Euro and the US dollar. The first currency in the pair is called the base currency, while the second currency is called the quote currency.
In forex trading, the goal is to buy a currency pair when its value is low and sell it when its value increases. This is known as going long or taking a long position. Conversely, traders can also sell a currency pair when its value is high and buy it back when its value decreases. This is known as going short or taking a short position.
How do Forex Pairs Work?
Forex pairs work based on supply and demand. When there is a high demand for a particular currency, its value increases. Conversely, when there is a low demand for a currency, its value decreases. This is why forex traders keep a close eye on economic indicators and news events that may affect the value of a currency.
Forex traders are constantly analyzing charts and technical indicators to determine the best time to enter or exit a trade. They also use various trading strategies to minimize risks and maximize profits. Some common trading strategies include trend following, range trading, and breakout trading.
Types of Forex Pairs on Oanda
Oanda offers a range of forex pairs to trade, including major, minor, and exotic currency pairs. Major currency pairs are the most traded currency pairs in the forex market. They include the US dollar, Euro, Japanese yen, British pound, Swiss franc, Canadian dollar, and Australian dollar. These currency pairs are the most liquid and have the tightest spreads.
Minor currency pairs, also known as cross currency pairs, do not include the US dollar. They are less liquid and have wider spreads compared to major currency pairs. Some examples of minor currency pairs on Oanda include EUR/GBP, AUD/CAD, and CHF/JPY.
Exotic currency pairs are currency pairs that include one major currency and one currency from an emerging economy. They are the least traded currency pairs and have the widest spreads. Examples of exotic currency pairs on Oanda include USD/HKD, USD/SGD, and USD/ZAR.
Forex pairs are the backbone of the forex market. Traders use them to speculate on the value of one currency in relation to another. Oanda offers a wide range of forex pairs, including major, minor, and exotic currency pairs. Understanding the different types of forex pairs and how they work is crucial for successful forex trading. Traders should also keep up-to-date with economic indicators and news events to make informed trading decisions.