What is Forex?
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What are the major
When trading the Forex market, we are actually speculating on the relative values of two paired currencies – each currency pair delineated in a 6-letter form that joins the respective 3-letter designations of the two traded currencies (EUR-USD, for example). One – the base currency (here, the Euro) – is that which lends the pair its basic unit, the other (the US Dollar in the example above) – the counter currency – is that which lends the pair its value. Accordingly, the value of the currency pair describes the number of counter-currency units required for the exchange of a single unit of base currency. If the value of the EURUSD is quoted as 1.1046, then 1 EUR equals 1.1046 USD.
The top eight currencies in which the world’s trade is executed are the US Dollar (USD), the Euro (EUR), the Japanese Yen (JPY), the British Pound (GBP), the Canadian Dollar (CAD), the Australian Dollar (AUD) and the New Zealand Dollar (NZD). The Chinese Yuan is not mentioned here since it does not have a floating exchange rate, but rather one that is pegged to the USD and manipulated by the government.
The major currency pairs are comprised of one of the above-mentioned seven (apart from the USD) paired against the US Dollar (the latter as the base currency in 3 pairs and the counter-currency in 4). Since these represent the most often traded pairs, usually their liquidity is highest and their spread (trading cost) the lowest.