Buy Sell Currency Pair
Buy Sell Currency Pair! Buying and selling currency is one of the most profitable businesses all over the world. Currency traders across the globe are making a successful living out of trading currencies. To make it in this field, you will have first to understand the ins and outs of buying and selling currencies. It sounds simple, but without proper knowledge, it can be challenging.
What Is Currency Pair?
The trading of two currencies against each other in a forex market is what is referred to as a currency pair. The value of a currency is what is termed as the rate. The rate is determined by its comparison to another currency when buying and selling a currency pair.
There are two types of currency pairs. The major currency pair and the cross currency pair. The major currency are such currencies as EUR/USD, USD/JPY, and AUD/USD – they all have the US dollar. The cross currency pairs are those pairs that do not have the US dollar. The “/” sign is the spread.
Currency Pair Structure
In the currency pair, the first currency that is normally listed is the “base currency.” Besides the base currency, there is the second currency commonly referred to as the counter currency or just the “quote.”
Whenever the currency pair is published with the exchange rate, it is to help show how much of the quote is needed so as to buy a single unit of the base currency. A fairly good example is this, EUR/ USD=1.7548. What this means is that a single unit of the euro can purchase 1.7548 US dollars.
The work of the exchange rate when selling a currency pair is to help show you how many units of the quote or counter currency you will gain upon selling a single unit of the base currency. Maintaining a strict standard with regard to how you refer to currency pairs helps reduce mistakes. It also helps in keeping exchange rates very organized and well understood.
What affects a Currency Pair?
A currency pair is often affected by market forces. Brokers are aware of this. To get a better sense of the direction that the prices may move it is essential that you understand the market forces that affect the currency pair.
Employment figures affect the price of a currency pair. Given the size of the European economies, the US, and China, for example, employment figures are a key factor to look out for. They play a great role in determining the price of the currency pair.
The employment figure helps in telling the health of big economies when trading. As a result, you can guess the direction in which the prices are likely to move in.
Other factors that affect the currency pair also include the following:
· The figures of the Gross Domestic Product (GDP)
· The Consumer Price Index (CPI)
· The Producer Price Index (PPI)
· The Figures of Retail Sales Index (RSI)
· The Balance of trade figures
These are by far not the only factors to look out for when buying and selling a currency pair.Any data that can reflect upon a given economy’s health has the ability to affect the value of the currency pair as well.
How to Select a Currency Pair to Trade
Before you settle on a given currency pair to trade, carry out a little study. Study both of them. The USD is the most dominant in the global market. It is heavily traded against the likes of the Japanese Yen, the euro, the pound among others. Many traders make the mistake of studying just the USD dollar and ignoring the other currency in the pair. Avoid this mistake.
The best approach is to go for the strong/weak economy currency pair. This will boost your chances of maximizing returns. Avoid shaping your opinion just around a single currency.
When to Buy or Sell a Currency Pair?
Before you buy or sell, look at the interest rates. If you buy a currency with a higher interest rate compared to the currency you are borrowing, then you will have a positive net interest rate differential, and you will earn funds.
On the other hand, if you have a negative interest rate differential then you will pay. Interest rates are important. You need to observe then keenly to know when to buy or sell.
The strength of the economy is another element to consider when buying and selling a currency pair. If your base currency is the euro, EUR/USD, and it is probable that the US economy will weaken further, then initiate BUY EUR/USD. This so because the value of the euro will rise.
These are the basics of forex trading. Please do your due diligence before trading in Forex.