The world of trading continues to grow bigger and bigger by the day, and if you’re thinking of jumping on the bandwagon, there’s no time like the present to do so! FX Trading is definitely an up-and-coming market with a lot of scope and room for growth in the near future, and it’s always handy to pick up skills that could benefit your resume in the long run.
One of the most important factors when it comes to trading is knowing which trading pairs work well with one another, and with that, you also learn which ones you might want to avoid. The most profitable trading pairs won’t necessarily stay the same, so it’s good to have all the know-how so you can ensure you make the best decisions when placing a trade and are investing in the pairs that are doing well at any given time.
What is a Trading Pair?
It might be helpful to think of these as currency tokens that can be exchanged for other currencies that you’re interested in buying.
Trading pairs involve two currencies and are exchanged with other currencies; in other words, traded. The first currency, usually known as the base currency, is compared against the other, which is known as the quote currency.
What do Trading Pairs do?
Now that you have a better understanding of what a trading pair is, it’s time to consider what their purpose is. What exactly do they do? The primary role of the base and quote currencies is used to compare the value of one currency against the other.
For example, if looking at a EUR/USD currency pair (and it’s worth noting that that would be the format that the currency pairs would appear in), the pair is indicating that the Euro is the base currency and the USD is the quote currency.
A trading pair like this tells you exactly how many US dollars would be needed to buy the base currency of the Euro.
Where are They Used?
Currency pairs such as the ones mentioned above are used for trade on the foreign exchange market, and these can be sold, bought, and even exchanged for other currencies, and then you have the freedom to choose where you plan to invest them.
When a trade is placed on the forex market, two things will always happen. When you buy one currency, it means that you have sold another currency at the same time. In the same way, when you decide to sell a trading pair, you’ll receive the quoted currency price in exchange for the base currency.
Which is the Most Profitable Trading Pair?
Now that you’re more informed about trading pairs, it’s worth looking at what some of the most valuable trading pairs on the market are.
Although the rate of any given trading pair can always fluctuate on the market at any given time, learning about which pairs are traded the most will help you in deciding which currencies you want to focus on.
One of the most widely traded currency pairs in the market is the EUR/USD (the Euro against the American dollar) because they are both international currencies that have been used on the market even before Forex trading really took off.
Even just looking at the number of countries that use the Euro as their home currency, at the moment, 19 EU countries out of 27 make up what is known as the Eurozone.
Because both the Euro as well as the American dollar are official currencies of their individual economic zones, they both impact one another when the price of one shifts or changes. As it is one of the most traded pairs, it is also known as the market’s most liquid pair of currencies.
The popularity with which both these currencies are traded is a good indicator that it’s a relatively stable as well as profitable trading pair to look into. There will always be a need for both the Euro and the Dollar, so even if the price of one or the other fluctuates slightly, you know that the rate of the currency you hold will always become stronger at some point in the near future.
Other Profitable Trading Pairs
Aside from EUR/USD, there are also a number of other trading pairs on the forex market that you should definitely have a look at. These are all also very highly valued currencies on a global scale, so even when the rate fluctuates, you know that you won’t be suffering any major losses, as sooner or later, the rate will increase and strengthen the value of the currency that you own at that time:
- USD/JPY, the American dollar against the Japanese yen.
- AUD/USD, the Australian dollar against the American dollar.
- GBP/USD, the Great British pound against the American dollar.