On Forex, a currency pair is the main trading instrument. Traders usually choose major currency pairs, the so-called majors. But there are other currencies available for trading: cross-pairs and exotics.
Cross currency pairs
Any currency pair that does not include the American dollar is called a cross currency pair. For example, GBP/JPY. This instrument is more unpredictable and volatile and difficult for novice traders.
In the currency majors, the dollar determines the price of the currency pair. In the crosses, both pairs are equivalent and have the same effect on price fluctuations.
Trading cross currency pairs are characterized by high volatility. The most popular cross-pairs are those that paired with the euro: EUR/CHF, EUR/GBP and EUR/JPY. In addition to cross-pairs with the euro, traders often choose cross-pairs with the Japanese yen: CAD/JPY, GBP/JPY. These pairs are characterized by low liquidity, but traders can get a profit along with good technical and fundamental analysis.
But there are also such combinations as AUD/CHF, AUD/NZD, GBP/CHF. Trading with them is more difficult and riskier than trading euro or yen currency crosses. Forex traders don’t trade too much these pairs, as the spreads can be pretty wide.
Let’s take an in-depth look at trading EUR/CHF.
EUR/CHF
The EUR/CHF quote shows how much Swiss francs you need to pay for one euro. The base currency is the euro, and the Swiss franc is the quoted one. This currency pair has its own characteristics and is not recommended for beginners. The volatility of the financial instrument is average.
The currency pair has a relatively stable movement pattern. You can earn a profit using long-term strategies. For scalpers, EUR/CHF isn’t a reliable instrument. All trading strategies are allowed at JustForex – forex broker offering favorable trading conditions.
Exotic currency pairs
Exotic currency pairs represent the ratio of the base currency to the currency of one of the developing countries. These currency pairs are rarely used in trading, have low liquidity, huge spreads and are rather difficult to forecast.
Exotic currency pairs include liquid trading instruments. Among them are: USD/TRY, USD/ZAR, USD/IDR etc. Trading exotic currencies differ from trading majors by the interest level in the market. Such currency pairs bear the risks, so they are mainly traded by experienced traders.
Features of exotics:
1. These pairs have high spreads that exclude this instrument for scalping. Trading exotics require long-term strategies.
2. Unlike the majors, trading exotic currency pairs is not easy due to its low trading activity.
3. There are not so many important news related to the economies of developing countries, so fundamental analysis may be a little bit difficult for a beginner. The currencies of developing countries often depend on domestic processes, and it is not always possible to receive such information timely.
4. Not all brokers offer the opportunity to trade such pairs. JustForex works with exotic currency pairs, so you can open a demo account and try trading with this instrument.
5. The political and financial state of developing countries may undergo rapid changes and cause a rise or fall in the value of the national currency.
Let’s consider USD/ZAR.
USD/ZAR
The Rand (ZAR) is the currency of South Africa. The USD/ZAR quotes show how much South African Rand you need to pay for one American dollar. The US dollar is the base currency, and the South African Rand – the quoted one. The South African rand is a commodity currency. Factors affecting the USD/ZAR price are the demand for precious metals and raw materials.
Finding high-quality and relevant analytics for this pair is hard. Furthermore, the news on this currency pair is released pretty rarely. But it should be noted that all the news related to the US dollar is worked well on the USD/ZAR currency pair.
The USD/ZAR currency pair is characterized by high volatility, which is perfect for scalping. Also, due to the high volatility, it is worthwhile to plan money management properly.
Bottom line
In addition to these groups, traders also choose metals: XAU/USD, XAG/USD. These instruments are liquid; however, they are difficult to trade for beginners.
With a proper strategy and right tactics, trading can bring a good profit. So, it is necessary to know the basics of the market, as well as to stay up-to-date on important events. It“s also important to remember that anytime you can do some trading practice on a Demo account free of charge.
