Definitions of Forex pair, currency appreciation and currency depreciation, Forex majors, cross currency rates, exotic currencies are all key concepts for either a new trader or an experienced trader. Choosing the best currency to buy is a starting point for both.
What is a Forex Pair?
A Forex pair is the quotation and evaluation structure of the currencies listed within the forex market: the worth of a currency is decided by its comparison to a different currency. the primary currency of a currency pair is named the “base currency”, and therefore the second currency is named the “quote currency”. The currency pair shows what quantity of the quote currency is required to get one unit of the base currency.
What is Currency Appreciation and Currency Depreciation?
Currency appreciation is a rise within the price of 1 currency in terms of another. Currencies rise against one another for numerous reasons, together with capital inflows and therefore the state of a country’s accounting. Usually a forex trader trades a Forex pair within the hopes of currency rise of the base currency against the counter currency. Currency Depreciation is vice versa. When one currency in a Forex pair is rising or appreciating, the other currency in a Forex pair is decreasing or depreciating. As a currency rises it becomes more expensive to buy that country’s exported goods. This can cause a contraction in the economy, which may impact the worth of the currency.
What is the best forex currency to buy?
There are a lot of Forex currencies on the Forex market that could be buying or selling. Most often traders take positions on all known EURUSD and GBPUSD. But apart from them a large amount of other currencies and metals available for trading. So what is the best currency to buy on the Forex and what tools are excluded from its portfolio?
Let’s start with the fact that there are 3 groups of Forex pairs:
- Forex Majors (Majors)
- Cross Currency Rates (Crosses)
- Exotic pairs (Exotics)
Forex Majors are 4 pairs in which there are the US dollar and the currencies of the most significant countries (groups of countries). Here they are:
- EUR/USD: The Euro and the US Dollar
- GBP/USD: The British Pound Sterling and the US Dollar
- USD/CHF: The US Dollar and the Swiss Franc
- USD/JPY: The US Dollar and the Japanese Yen
From the above, all pairs could be traded. However, we advise new traders not to trade USD/JPY as it requires a little more careful analysis than the other majors and often throws unexpected tricks, such as the intervention of the Bank of Japan.
Cross Currency Rates (Crosses)
Cross Currency Rates are pairs of currencies traded in Forex that does not include the US dollar. One foreign currency is traded for another without having to first exchange the currencies into US dollars. As a rule, Cross Currency Rates are less active than Majors. Here are several crosses:
- AUD / CAD – Australian Dollar and Canadian Dollar
- AUD / CHF – Australian Dollar and Swiss Franc
- AUD / JPY – Australian Dollar and Japanese Yen
- AUD / NZD – Australian Dollar and New Zealand Dollar
- CAD / JPY – Canadian Dollar and Japanese Yen
- CHF / JPY – Swiss Franc and Japanese Yen
- EUR / AUD – Euro and Australian Dollar
- EUR / CAD – Euro and Canadian Dollar
- EUR / CHF – Euro and Swiss Franc
- EUR / GBP – Euro and British Pound
- EUR / JPY – Euro and Japanese Yen
- EUR / NZD – Euro and New Zealand Dollar
- GBP / AUD – British Pound and Australian Dollar
- GBP / CHF – British Pound and Swiss Franc
- GBP / JPY – British Pound and Japanese Yen
- NZD / JPY – New Zealand Dollar and Japanese Yen
Of course, not all of these crosses should be used in trade. For the classical trading on trends the most preferred are the pairs with the Yen excepting CAD / JPY and CHF / JPY. However, we do not recommend crosses to new traders.
Exotic Currencies (Exotics)
For exotic currencies are crossing small countries with US dollar and each other. Their lot is USD / RUB, USD / MXN, EUR / DDK and other nonsense.
Summarize. What is the best currency to buy (to trade) on Forex?
For a new trader:
EUR / USD, GBP / USD, AUD / USD and NZD / USD
For an advanced trader:
EUR / USD, GBP / USD, AUD / USD, NZD / USD, USD / CHF, USD / JPY, EUR / JPY, GBP / JPY, AUD / JPY.
You should not burn too many pairs simultaneously. However, with a portfolio of currencies you can get a smoother yield curve due to the large number of transactions.