Forex Major Pairs, Currency Pair Characteristics
We trade 8 currencies and a total of 28 major forex pairs with the Forexearlywarning trading system. Since our trading system accommodates so many pairs, it takes some traders a while to get used to trading this way. We will review the characteristics and traits of all 28 pairs along with a comparison of these characteristics. Charcteristics like volatility, spreads and when these pairs move, etc. will be investigated.
Example Forex Major Pairs
A forex major pair is a currency pair with the USD on the left or right side of the pair. For example the EUR/USD and the USD/CHF are both forex major pairs. We trade a total of 7 major pairs with the Forexearlywarning trading system. The other forex major pairs you can trade with our system include the GBP/USD, USD/CAD, USD/JPY, the AUD/USD and the NZD/USD.
List Of Currencies and Major Pairs
With the Forexearlywarning system we trade eight currencies. These are the US Dollar, Canadian Dollar, Euro, British Pound, Swiss Franc, Japanese Yen, Australian Dollar and the New Zealand Dollar. Out of these 8 currencies, the three most actively traded and most liquid currencies are the USD, EUR, and JPY. Currencies like the CAD, NZD and AUD are commodity based currencies are correlated to the movements in the prices of oil and gold. The other currencies are more reserve based currencies, which are held in large quantities by governments and banks.
These eight currencies can be combined into 28 pairs. These 28 combinations include 7 major pairs and 21 exotic pairs. The 7 forex major pairs are all of the pairs with the USD on the left or the right, like the EUR/USD and USD/JPY. There are 21 exotic pairs, without the USD on the right or the left, that we trade with the Forexearlywarning system, like the EUR/JPY or AUD/CAD. The most frequently traded currency pairs are the EUR/USD, USD/JPY, and GBP/USD, which are all forex major pairs. The most frequently traded exotic pairs are the EUR/JPY and EUR/GBP.
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When Currency Pairs Move and Why
All 28 pairs can move in the main trading session, including all of the forex major pairs. A few times per month, the AUD and NZD based pairs can move quite a bit in the Asian session after some related economic news drivers. These movements can carry forward to the main trading session and give sizable movements, but this only happens a few times per month. Be sure to check our complete article about trading in the Asian session and the best times to trade the forex market. There are some limitations for Asian session trading. Also, the JPY pairs can move in the Asian session when they are in consistent up trends or downtrends on all pairs. If you check the economic calendar for the main trading session you can see how the European based pairs can move first followed by the USD and CAD pairs as the trading day progresses. Just to be clear, all 28 pairs can move at any time the forex market is open, but the majority of the movements follow the guidelines stated here.
Currency pair characteristics for causing price movement are pretty simple. All pairs, including the forex major pairs, move because one currency is strong and the other currency is neutral or weak. Or one currency is weak, and the other currency is neutral or strong. This characteristic is universal for all 28 pairs we follow, plus any other pair for that matter. There is absolutely no other reason to trade a pair looking to profit from the movement. We can trade the most popular 28 pairs because we can see these movements daily on The Forex Heatmap® forex heatmap. Also we can analyze strength and weakness of trends by reviewing the charts, by individual currency. So traders would look at all of the JPY pairs together, for example.
How To Trade The Forex Major Pairs Profitably
The AUD/USD is one of the forex major pairs. In the example below we can show traders how to successfully trade this pair, and the same principles apply to trading any of the forex major pairs, or any other pair for that matter. In the example below or real time indicator, The Forex Heatmap® forex heatmap, tells you that AUD (Australian Dollar) is strong and this consistent signal drove price movement on many pairs. This causes price movement in the major pairs like the AUD/USD, but strong movement in other non major pairs as well. Some of these pairs are completely ignored by almost all traders but this turns into a huge opportunity once you understand how the market works. The price movement is 90 pips on the AUD/USD alone in one trading session.
Volatility And Price Movement Of The Forex Major Pairs
The volatility of the 28 pairs we trade varies quite a bit. Comparing the volatility of one pair to another is easy by looking at the price quote, then subsequently moving a decimal point. For example if the price quote on the CAD/CHF is 0.7533 then a 1.00 percent movement is 75 pips, you determine this by moving the decimal point in the quote two places to the right. If the bid price is 1.1375 on the EUR/USD (major pair), then a 1.00 percent move is 114 pips, once again move the decimal place two places to the right. If the bid price on the GBP/NZD is 2.2986, then 1.00 percent is 230 pips. This means the GBP/NZD is more than 3 times as volatile as the CAD/CHF. All of the forex major pairs and all 28 pairs we trade pairs can be volatile after related news drivers, even in the Asian session. All traders should understand the 1% rule for volatility of any currency pair.
Currency Characteristics and Fundamentals
Individual currencies also have fundamentals and characteristics. Each currency we track has rising or falling interest rates, some are connected to prices of commodities, some correlate the the performance of equity markets like the S and P 500. To learm more about these currency fundamentals we have a complete lesson covering forex fundamental analysis.
Quotes, Swaps and Payouts and Spreads
How currency pairs are quoted varies somewhat. The EUR/USD can be quoted at 1.1358, the EUR/JPY can be quoted at 140.10 and the NZD/USD can be quoted at 0.6866. This takes some getting used to. Just remember that if all three pairs moved up 10 pips each only the two digits on the right would change. ie. the EUR/USD would then be 1.1368 and the NZD/USD would be 0.6876.
The spreads on a currency pair is an indication of the liquidity and daily trading volume of that particular pair. Pairs with higher daily trading volumes have lower spreads. If the spread on the EUR/USD is 1.3 pips and the spread on the EUR/NZD is 4.1 pips, you know that the EUR/NZD is less frequently traded. The spreads on the forex major pairs is generally lower because the USD has the highest daily trading volume of any currency on the foreign exchange. The spreads are the lowest on the EUR/USD because the EUR and USD are the two most commonly traded currencies on the forex market. So traders can conclude, as a general rule, that the lower the spread, the higher the liquidity and daily trading volume of that pair.
Look at the spreads on this sampling of 10 out of the all 28 pairs we trade with the Forexearlywarning trading system. This will give you a feel for the liquidity of each pair. The spreads on the forex major pairs and all 28 pairs we trade are acceptable for daily trading and are only somewhat high on one or two pairs. The spreads you see below are from a major broker for an ECN, direct access brokerage platform.
One of the currency pair characteristics that is variable is the pip value, or payout, it varies from pair to pair. The payout is the amount you get paid or lose for 1 pip of movement after you are in a live trade. The value of one pip of movement is always different between currency pairs because there are differences between the exchange rates of different currencies, and the currency your trading account is funded in. If your account is funded in US Dollars, pip payouts range from about 70 cents on the AUD/NZD to about 1.60 on the EUR/GBP. It is not always exactly $1.00 for a one pip move, assuming a $10,000 (one mini lot) trade.
If your account is funded in US dollars, and you buy or sell the EUR/USD, which is $10,000 USD worth of Euros. If the price moves one pip the profit or loss will be $1 depending on which way it moved. But on an exotic currency pair like the EUR/JPY you would have to take the current EUR exchange rate against the Yen then convert to USD, since your account is in USD. In this case the payout for 1 pip of movement is 1.053 dollars for one pip of movement. Remember there are three exchange rates needed to complete the calculation on the EUR/JPY
If your account is funded in another currency you would have to re-calculate the 1 pip payouts on any transaction. Fortunately, rather than having to use a calculator every time, all you have to do is place a trade and the math is worked out in your trading platform. So calculations are not needed, just do some demo trades to see how the values change on any pair and look to see how the profit and loss fluctuates.
Swaps and Rollover Interest
Swaps or rollover interest is the amount of interest paid into or debited from your account once per day based on the positions you are holding. Since retail forex trading is leveraged the interest rates must be accounted for. It varies for all 28 pairs and is dependent on the interest rates in the two currencies involved. For example if you buy the AUD/USD and hold on to the trade, you will be paid interest daily if the interest rates in Australia are much higher than in the USA. If you were to sell the AUD/USD pair and hold on to the trade, the interest would be deducted from your account daily. If the interest rate differential is high between the currencies the daily swaps can add up. Also, if the interest rate between the two currencies is similar the daily swaps will be small or negligible. Your broker should be able to provide you with a list of the daily swaps for buys and sells of the forex major pairs and all 28 pairs we trade. The interest paid or debited into your account happens automatically and is programmed into the broker trading platform. So interest rate differential between the two currencies in the pair is a unique characteristic of each currency pair.
Trends and Choppiness
All 28 pairs can trend up and down for days, weeks or months. Similarly, all 28 pairs, including the forex major pairs, can become choppy and difficult to trade, or oscillate in wide, trade-able ranges. As a forex trader we are looking for trending pairs that we can enter a trade with, then ride the trend up or down for long cycles, but we can also do short term trades for intra-day or day trading profits using our tools and indicators. The only thing that matters is the strength and quality of the trends and trading signals that you use with our trading system. You should not have any bias towards any major pair or non major pair. Always trade the best opportunity that the market trends and signals are presented to you of the 28 pairs we have at our disposal every day. If the market is choppy or the signals are weak you can also choose not to trade.
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