The Beginner’s Guide to Reading a Forex Chart

Crosses The crosses are pairs with minimal profit potential compared with the majors and lack the USD. High exposure of the US dollar can make one’s trades move in the same direction, which can be a massive problem if it’s against the profiting direction. The best cross pairs include GPB/JPY, AUD/CAD, EUR/GPB, EUR/AUD, CAD/JPY, and NZD/JPY. GBP/AUD and EUR/CAD are the most highly traded crosses because they offer traders security whenever the United States Dollar’s direction is uncertain.

how to read forex pairs

This significant number shows that a huge majority of Forex traders prefer to use major currency pairs. There are two concepts that you might have to understand before you start trading Forex. The bid represents the buying price of a certain currency pair.

Using Yuppy (EUR/JPY) As A Leading Indicator For Stocks!

Some of the popular digital currencies are Ethereum, Bitcoin, and Litecoin. Exotic pairs will be less liquid, and spreads can be significantly wider. Bid-ask SpreadThe asking price is the lowest price at which a prospective seller will sell the security. The bid price, on the other hand, is the highest price a prospective buyer is willing to pay for a security, and the bid-ask spread is the difference between them.

  • While the table above is fairly comprehensive, it is by no means a complete listing of every exotic currency in the world.
  • Some of the top traded cross currency pairs are EUR/CHF, EUR/GBP, and many others.
  • In all currency pairs, one of the currencies is the base and the other is the quoted one.
  • These types of currency pairs are made up of one major currency, which is traded in pairs with the currency of the developing market.
  • The number of them is changing very frequently, as new currencies are adopted or the older ones are changed, new currency pairs are born as well.

Conversely, if you buy the EURUSD (also referred to as going “long”), you are buying the Euro and selling the US dollar. For example, if you sell the EURUSD (also referred to as going “short”), you are simultaneously selling the Euro and buying the US dollar. There are essentially two ways in which any currency pair can move higher or lower. As you might have guessed from its name, each pair involves two currencies. In this way, the value of one currency is compared to and is thus relative to the currency it’s paired against.

How to Read Currency Pairs in Forex?

They will also look at levels of resistance, where prices tend to decline. Several factors will affect the price of currencies, including economic and political elements. Wicks represent the highest and lowest prices reached during the given time period. It’s a dynamic, liquid marketplace with daily turnover predicted to be inexcess of 5.3 trillion dollars. This website is owned and operated by Just Global Markets Ltd., which provides investment services. Copying any information on this website, as well as using JustMarkets Brand Characteristics, is allowed only with the express written permission of JustMarkets.

Spread is usually larger for emerging market pairs and smaller for widely traded currency pairs due to their huge trading volume. A higher spread can be caused by high volatility in the market, important events, or low liquidity. On the contrary, a small difference between the bid and the ask price is observed in times of low volatility and high liquidity and creates more profitable terms for traders. Next, we have the minor pairs which are made up of base and quote currencies that have decent trading volume but are still traded less than the major pairs. While certain minor pairs actually have pretty good price action, you’ll pay a premium in spreads as they’re usually a bit higher than their major pair counterparts. Nothing wrong with that if you trade the Asia session and are looking for volatility in the Yen or Australian Dollar pairs.

The most popular currency pairs on the market are the major currency pairs. They are known for their high liquidity and narrow spreads, which makes them a good option for every trader. Major currency pairs are those that are made up of USD and another major currency on the market. One coinbase exchange review of the most popular currency pairs on the market is the EUR/USD currency pair. Exotic currency pairs are the ones that are made up of emerging market currencies. The spreads for trading these currencies are much wider, and their liquidity is significantly lower than Majors or Minors.

Direct quotes are the ones that involve a trader’s local currency while indirect quotes are the ones that only include foreign currencies. Based on whether a pair includes the currency of your account, the forex quotation is referred to as direct or indirect. In other words, if the cost of one unit of foreign currency is expressed in units of your account currency, it is a direct quotation. On the other hand, if the transaction doesn’t include your account currency, it is indirect. A currency price is often shown with two different quotes, as the price usually differs whether you want to buy or sell.

In a nutshell, a Forex quote is the price of a particular currency in another currency. The next step is to make your deposits, choose a trading platform offered by the broker, and start opening your positions. Remember that there are a lot of things involved in Forex trading. For best results, xm group it is a smart idea to follow different types of indicators and tools. As we have already said, there are three types of Forex pairs available in the market. Major currencies have tight spreads, which lowers the expenses, and thus increases the potential profit margin percentage.

how to read forex pairs

They have liquid markets where trading takes place 24 hours a day on all business days. AUD/USD The Australian dollar is Australia’s official currency. AUD’s value goes hand in hand with CAD’s, mainly due to the interdependent relationship between the two countries economies. Also, AUD’s value relies on the commodity market because the country exports considerable amounts of iron and coal. USD/CHF Traders who invest in this pair want to secure their assets during turmoil. CHF, to be precise, is regarded as a ‘safe-haven’ currency because it behaves like a hedge.

Buying and selling always involves a pair of currencies– the one you are interested in selling/buying and the other one that reflects the price of the first one. To avoid confusion, the first currency is referred to as a base currency while the second one is called a quote currency. In the EUR/USD pair the euro is a base currency and the dollar is a quote currency. Forex might look intimidating for those who have never tried currency trading before.

Types of Currency Pairs in Forex

When the interest rate is increased by a central bank overnight, the demand for the currency is also increased. Also, the economic data that are reported around the world influences the prices of the currencies as well. A bar chart consists of a horizontal line of bars, with the bars each lying vertically across the chart. Each bar will usually represent a time period, such as a trading day. The height or the top of the bar will represent the highest price reached by the currency pair during the trading day. In forex trading, a line chart is better for those who are trying to get an idea of the bigger picture.

As we have already said, the Forex trading market stays open for 24 hours a day, 5 days a week, and the trading volume that the market sees is huge. As we have already said, when you are trading Forex, the currency that you are buying is called the base currency, and the one you are selling is called quoted currency. In general, understanding currency pairs and the concepts that we are talking about is not that hard, but there really is a lot that goes into it. Minor currency pairs are the ones that are made up of major currencies but don’t include USD.

With the help of technical analysis, traders try to predict future price movements based on a number of indicators. On the other hand, with fundamental analysis, traders make decisions based on economic data and news releases. If you want to be successful while using currency pairs analysis, you need to know how to use them. Currencies from developing or emerging market economies that are paired with a major currency are called exotic currency pairs.

how to read forex pairs

Major currency pairs are made up of USD and one other major currency. The most traded currency pair, EUR/USD is actually a major currency pair. To read and understand a forex quote, it helps to become familiar with the terminology.


Therefore, it is not surprising that its profit margin is lower than that of other pairs. A currency pair is a quotation of two different currencies, where one is quoted against the other. The first listed currency within a currency pair is called the base, while the second currency that is the benchmark is called the quote. It’s therefore recommended for professional Forex traders to exercise risk management within their trading, to make sure that they minimise the risks as much as possible. A line chart does not have the same level of detail as some other types of charts and is, therefore, easier to read.

Hedge Fund RiskThe main reason for investing in hedge funds is to diversify the funds and maximize the investor’s returns. However, high returns come with a cost of higher risk since hedge funds are invested in risky portfolios and derivatives, which has inherent risk, and market risk in it. One can identify a currency from itscurrency codewhich is in three letters.

Brokers will typically quote two prices for any currency pair and receive the difference between the two prices, under normal market conditions. Stocks and equities are typically available to trade as CFDs (contract-for-difference) products at most major FX brokers. This is a bit of a newer offering as brokers have gotten better at providing access to these instruments in the last 5 years.

Understanding Forex Quote Basics

Also, before choosing which currency pairs Forex to trade, you should consider the trading strategy that you want to use. If you are someone who is from a developing economy and you know your national currency very well, you might be able to successfully trade exotic currency pairs. Before you start trading currency pairs, there are some basics that you should know. The Forex trading market is open 24 hours a day, 5 days a week. Because of this, there always is someone who is trading Forex. The price of the national currencies in these countries largely depends on the prices of commodities, thus, many people call these currency pairs commodities currency pairs.

What influences Forex pairs value?

No matter what forex trading platform or broker that you use, you will be exposed to various different types of forex trading charts. None of these are inherently better than the other, and all are used every single day by top traders in Wall Street and the City pepperstone review of London. Put simply, a forex chart is a chart or a graph that shows how the exchange rate of a currency pair, such as USD/EUR, has fluctuated and changed over time. It will usually show the historical exchange rate of a forex pair within a given time rate.