- September 2014
- Posted By Ninoslav
- 0 Comments
The functioning of a Foreign Exchange Market is simple enough – you trade, buy, sell or exchange currencies. So, there must be designated exchange rates at which one can buy or sell? To make matters simple in this regard, the concept of a Currency Pair was introduced, where exchange rates are designated in simpler terms.
As far as its definition goes, it tells the relative value of one currency against another currency taken as reference. The first one, whose relative value is being quoted, is called the base currency, and the one which is taken as reference is known as counter or quote currency. Thus, a pair is listed in the markets in terms of base /counter.
Majors, Minors and Nicknames
Did you know that there is an existence of a priority ranking of currencies to be treated as the base in a pair, although non-standardized? Following is the ranking which is being talked about:
- Pound sterling
- Australian dollar
- New Zealand dollar
- United States dollar
- Canadian dollar
- Swiss franc
- Japanese yen
So, in a pair you are likely to come across pairs like EUR/USD, AUD/USD and USD/JPY more often than the reverse. Also, there is a term called the Majors, which lists those pairs which are traded in large scales round the globe. Some of the Majors are EUR/USD, GBP/USD and USD/CHF.
Other less trending pairs are touted as Minors, which involve a lot of pairs. Also, did you know that many a Currency Pair has a nickname? Like a EUR/GBP called a Chunnel or Guppy for GBY/JPY?
So, that was just something that needed knowing about Currency Pair. If you find such things interesting, go forth and read upon “What is implied when one speaks of Currency Strength”.