eMarkets liquidity provider
B2C and B2B solutions

Alpari (UK)

  German
  Arabic
  Japanese

• Video Tutorials
  • Intro
  • MetaTrader 4: Tips and Tricks
  • MetaTrader 4: Trade Window
  • MetaTrader 4: Platform Management
  • MetaTrader 4: Indicators and EAs
  • Systematic: Quick Start
  • Systematic: Selecting Your Systems
  • Systematic: Money Management
  • Systematic: Account Management
  • Alpari Research: Technical Reports
  • What is Forex and How Does It Work?
  • Pair Characteristics
  • Introduction to Charting
  • Introduction to Technical Analysis
  • Risks
  • Using Technical Indicators
  • Introduction to Fundamental Analysis
  • Gold and Silver
  • Money Management
  • Position Sizing
  • Understanding and Trading the News
  • Earning Interest in Forex
  • Introduction to Fibonacci Analysis
  • Economic Indicators
• Autochartist
  • Intro
  • Download Autochartist
  • Autochartist Tutorials
• Market Analysis Guide
  • Intro
  • Technical Analysis Guide
  • Bill William’s Chaos Theory
  • Japanese Candlesticks Theory
• Glossary

Pair Characteristics: The Majors and The Crosses

 

Understanding Forex Pairs
 
Forex pairs are divided into two broad categories. There are the majors that include the most frequently traded and most liquid currency pairs and the crosses. The majors all include the USD as either the base or quote currency. The cross currency pairs do not include the dollar because they "cross" two other currencies with each other.

The Majors
 
The most actively traded currency pairs are the majors. These are all crossed with the USD and make up the majority of annual trading volume in the forex market. For example, according to the Bank for International Settlements the EUR/USD makes 27% of all forex trading alone. If you combined the trading volume of the EUR/USD with the GBP/USD and the USD/JPY you would have captured 52% of annual trading volume. Most traders start their forex career by becoming familiar with the most popular majors before beginning to trade the crosses or smaller major pairs.
 
The EUR/USD "Major"

 
The Crosses

Although the crosses constitute a minority of the annual trading volume in the forex they are an important source of trading opportunities and diversification for forex investors. A forex pair that is considered a cross does not include the USD as a base or quote currency. The EUR/CHF and GBP/JPY are very actively traded crosses that many traders will use as part of their trading strategy.
 
The EUR/CHF "Cross"

 
Further Classification

Typically currencies that fit into the crosses or majors category are further subdivided into those currencies that are most sensitive to the impact of trade or capital flows. These are the two most significant fundamental factors for any currency's value and will be a subject that we spend more time on in a later video. The currency pairs that fit best into the two categories are included below.
 
International Trade Currencies

These currencies are heavily influenced by changes in global demand for raw materials (commodities) and finished goods. A few of them (CAD, AUD, NZD) are often referred to as the “commodity currencies.”

GBP/USD
AUD/USD
NZD/USD
USD/CAD
USD/JPY
 
Capital flow currencies
 
These currencies are heavily influenced by changes in demand for investments including equities, bonds and interest bearing investments. You will notice that there are some currencies that overlap. This is not accidental. It is impossible to rigidly define them.
 
EUR/USD
GBP/USD
USD/CHF
USD/JPY
 
 
Tips for knowing what may or may not move a currency price:

1. Don’t get overweight in currencies with similar characteristics. Investing long in the EUR/USD and short in the USD/CHF is like having twice the exposure to the same factors, as the fundamental factors that influence the price of each are the same.
 
2. Plan for the risk factors that could affect your trades the most. Trade numbers in the US will probably not affect the EUR/USD as much as a breakout in yields.
 
3. Don’t over-focus on a single exchange rate influence. Prices are sensitive to many factors and they will change over time. Manage your risk control to account for those issues. And keep in mind that differences in these influences from one economy to the next is as important as the factor itself.
 
4. Diversify, and minimize risk by looking for a nice blend of "major" and "cross" currency pairs that are each influenced differently by the fundamental factors we’ve discussed here.

Provided by Learning Markets

 

 

© 2004-2010 Alpari (UK), LTD