What is Currency Pairs Trading?
The main objective of trading CFD Currency Pairs is to exchange one currency for another currency given the expectation that the currency pair will appreciate/depreciate depending on the position that is being taken by the trader.
A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first currency is called the base currency and the second currency is called the quote currency. The first currency is being compared to the second one. The difference between them displays the price of how much of the quote currency is needed to purchase one unit of the base currency.
For example, if you are buying Euro versus US dollar (EUR/USD), you are anticipating a rise in Euro at the expense of US dollar.
These currencies are traded through the most liquid market out there known as the Forex market.
In principle, when the amount of the second currency pair changes, profit or loss are expected.
Limit Prime Securities offers a wide range of currency pairs, including all the major currency pairs. We offer consistently low spreads on a number of popular currency pairs. Check the trading conditions here.
What affects the rates of Currency Pairs?
The rates of different currency pairs could change overnight and usually these changes are caused by economical factors, politics and central banks around the world.
The factors below have a direct impact on these rates:
- Interest Rates - Changes in interest rates affect currency value and dollar exchange rate. Usually when a central bank increases its interest rate causes high demand for that currency because investors and traders seek a higher yield which in turn appreciates the currency relative to other currencies.
- Inflation Rates - When inflation is low the prices of goods and supplies slowly increase. A country with a lower level of inflation will see an appreciation in the value of its currency.
- Recession - When a country is in recession, its currency weakens in comparison to other countries. The chances that this country will gain foreign capital, when in recession are low.
- Politics - The government, elections, trade wars, corruption scandals and mistakes have the power to affect the economy. Which can result in a boost or a decrease in the currency's relative value.
- Speculation - When investors expect one country’s currency to rise, they are more likely to demand more and more of the currency in order to make a profit. This causes it to increase.
But, it is important to note that with the rise of a particular currency, the exchange rate is also becoming higher.
Tips for Trading Currency Pairs
- For many new traders, investing and trading currency pairs can be confusing, new and scary. While you become more comfortable with the fundamentals and technicals of trading, analysts suggest you to choose liquid currency pairs like the EUR/USD or the USD/JPY.
- Not many people tend to focus on the style of trading. But by choosing a trading style, like Day Trading, Swing trading, Position trading.. etc. you are more likely to satisfy your trading needs.
- Stay up to date! Make sure to follow the market, the news about currency pairs and different charts.
- Lots of beginners, that are just stepping into trading, tend to use excess leverage. You can avoid this by determining the appropriate leverage.
How do I start trading Currency Pairs?
Here is one video example that will help you understand how currency pairs work. Take a look:
Trading Currency Pairs has never been easier.
Here is what you need to do:
- Open an account
- Fund your trading account
- Start trading
List of Currency pairs - MontenegroRead More
List of Currency pairs - Other countriesRead More