Understanding Currency Pairs: A Guide for Singapore Forex Traders

If there is one thing that every forex trader needs to know especially those who are beginners in forex trading in Singapore, it is the currency pairs. In forex trading, currency pairs are the most basic form of trading and understanding how it works will be useful in forex trading. A currency pair refers to a direct comparison of the value of one currency to another, and knowing how such pairs behave can either make or mar your trading experience.

In forex trading currencies are always purchased and sold simultaneously in pairs such as EUR/ USD, GBP/JPY, or AUD/JPY. The former is given the name base currency and the latter is known as the quote currency or counter currency. Price is the amount needed to buy one unit base currency in the market of currency pairs. For instance, in the EUR/USD pair, if the price is 1.20 it shows that 1 euro equals 1.20 US dollars. This is an important concept across the context of trading and it is useful to fully understand.

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The three types of currency pairs include major pairs, minor pairs, and exotic pairs. Those, which are called the majors, are the most frequently traded pairs, and those currencies are the most stable and liquid. Normally they include the US dollar like EUR/USD, USD/JPY, or GBP/USD. Major pairs are quite famous through the traders because they are highly liquid; their spreads are narrow; and their volatilities are comparatively low, so these pairs are suitable for both novices and professional traders.

Minor pairs, in contrast, exclude the U.S dollar in their pair combinations. These pairs consist of other significant currencies including EUR/GBP or EUR/AUD. Still, as already noted, minor pairs are much less liquid as opposed to their majors counterparts; however, they are beneficial in providing great diversification possibilities, as well as offering unique trading specifications. Understanding how these pairs behave can provide Singaporean traders with more trading opportunities.

Exotic pairs consist of one major currency and one currency from a developing or emerging market economy, and they stand out for their lower liquidity. They can be USD/TRY for the US dollar against Turkish lira or EUR/SGD for the euro against Singapore dollar. These pairs generally exhibit low liquidity and base to quote spreads, entailing some variability within the price quote. There is normally the possibility of getting very high profits and this is why exotic pairs can be very attractive but there is normally the additional risk which traders should always consider when doing business in such pairs.

Singaporean traders must choose their forex brokers carefully, as this determines their access to the market and the currency pairs they can trade. A good forex broker in Singapore assists a trader in the selection of the right currency pairs, analysis of quotes, the outlook for the market and operations with them. When choosing your sets of currency pairs you can make better trades based on the market conditions and trading plan

Knowledge of currency pairs is crucial to the success of any forex trader in Singapore. Irrespective of whether you are involved in major, minor or exotic pairs it will be easier to manage risk and take opportunities as you understand how these pairs behave and are constituted. The best forex broker in Singapore will enable you to expand your knowledge in trading the various currency pairs as well as make better trading decisions.