What is a Currency Pair in FX market? What are the best Currency Pairs to Trade in India?

If you have just stepped into Forex Trading Market, you might have heard the term “Currency pairs” a lot often. The major earning from a forex trading is based on the derivatives of a two currencies, so it is clearly very important for a trader to know trends of the market and the up to date situation of the economy to decide which currency will dominate the market. This is the basic logic behind currency trading, in this article will cover what to trade, when to trade and most important which currencies to trade.

Before jumping straight into the trading, we need to understand the basic knowledge of it. A currency pair is quotation of two currencies against each other unit on a Forex market. These two units are abbreviated by their international standard unit, with a slash, space or point in between. The first currency unit is called as the base currency and the second currency unit is called the quote currency. The value of a pair is based on how much quote currency is needed to buy the base currency. For example, if we take the Euro and US dollar pair, EUR/USD. The current value for  1 Euro is 1.05 USD, that means we will evaluated the value as 1.05 USD.

Trading in forex market involves buying on currency unit and selling another unit. You have to keep in mind that the currency pair itself is not a single unit that you buy from a broker. While buying a pair, you have trade off by selling and buy one of the currency unit. The broker will give a bid or an offer of the base currency unit in exchange of the quote currency which you want to buy. On the contrary to stock market or commodity trading, using cash to buy lot or commodity, you are trading off on the basis of the unit value.

Currency Pairs can be basically divided into three types based on the leading currency unit involved in it. Such as Major pairs, Minor Pairs and Exotic Pairs.

In Minor pairs, US Dollars is not involved at all, instead the currencies pairs against Japnanese Yen, Euro or British pound or at least of the mentioned. Minor Pairs are also called Cross-currency pairs, they generally are not very liquid and you will see a huge spread on the FX market.

In Minor pairs, US Dollars is not involved at all, instead the currencies pairs against Japnanese Yen, Euro or British pound or at least of the mentioned. Minor Pairs are also called Cross-currency pairs, they generally are not very liquid and you will see a huge spread on the FX market.

Exotic Pairs are those pairs which involves currencies from the emerging market economies, they can also be considered as minors. The main drawback of an exotic pair is that due to its emerging nature, the market is very volatile and can be easily influenced by lots of factors which will lead in wild surge of prices.

In India, Forex Trading is quite different from the rest of global market. Here it is regulated and facilitated by National Stock Exchange or NSE. Currency pairs can be traded on popular exchange like NSE, BSE or MCX. 

 Followings are the pairs which are allowed to trade in India:

Currency Trading involves dealing with world market economy and it’s no secret that macro economy will play a huge role in determining the loss and gains of your trade. It is crucial to understand the factors that will eventually affect the exchange market so that we can prepare beforehand to avoid and major capital loss.

This is top most factor or atleast one of the major factor that can bring a huge impact in any market. It can influence foreign exchange and can transform the value of any currency instantly.

Political events are unpredictable in nature, but the best we can do is closely follow up with the political situation of the country so that we can speculate and take our measures.

It is clear that inflation rate of a country will directly impact the value of currency of that particular country. Country with low inflation rate will have rising currency value, as its purchasing power will also increase hand in hand. Likewise, Country with high inflation rate will lower currency value and lower purchasing power.

Terms of Trade or TOT is the ratio of a country’s export and import rate. The more balance the TOT rate is the stable the economy of that country is. Hence, it is also major influence on the value of the currency.

It is also crucial for a trader to follow up with major economic indicators such as GDP, CPI, PMI and employment data which shows the condition of the economy in a country. Understanding these dates will a have better insight and bring advantage in your trading prospect.

Currency trading is different from traditional trading, there are lots factors involve in trading which will decide the progress. The attitude and mindset of a trader and along with the analytical and adaptive skills will lead to gains in trade. No matter which currency pairs you choose to trade on if you do not plan properly and lack insights, you will not progress in that particular direction you want to. It is advisable that have a set back plan, proper understanding of the situation and taking necessary step is the right way to go.