Countries around the world have their own currency and traders learn to quickly recognize those currencies by their three-letter acronym or abbreviation.
The two letters at the start refer to the name of the country and the third is the currency. E.g. AUD is the Australian Dollar. This is based on the ISO international standard – 4217. The table below is to assist you when you trade to quickly recognise the currencies.
The euro as a standard currency has been adopted by 18 of the 28 European member states at the time of writing. Additionally, the euro has also been adopted by Monaco, San Marino, The Vatican City and Andorra. Also four territories dependent to France and one to Britain. In the list below we list the countries’ original currencies and note the euro.
CURRENCY PAIRS EXPLAINED
A currency pair is a quotation for two different currencies. It is the amount you would pay in one currency for a unit of another currency. For instance, when a trader is quoted EUR/USD 1.13 it means that the trader can exchange 1 Euro and receive 1.13 US Dollars.
When a currency’s value changes, it changes relative to another currency. If the EUR/USD quotation goes from 1.13 today to 1.15 tomorrow it means that the Euro has appreciated relative to the US dollar, or that the US dollar has depreciated relative to the Euro because it will cost more US dollars to purchase 1 Euro.
- Forex markets are used to trade exchange rates between two or more national currencies.
- All trading within the forex market, whether selling, buying, or trading, will take place through currency pairs.
- The most common currency pairs often involve the US dollar or Euro, but may also show up among geographic neighbors like Australia and New Zealand.
Most commonly traded currencies are referred to as Majors. Below is the list of currency abbreviations which we recommend to memorize.
Currency Pair is two indicated currencies which make up a quote at the financial market.
As a foreign currency trader you have to know the abbreviations of the commonly traded currencies (the Majors). Since you trade one currency for another, the currencies you chose to do business with will be shown in pairs.
Since foreign currencies are quoted in terms of value of one currency against another, a Forex currency pair consists of an acronym for both currencies, separated by a slash ‘/’. The acronyms used were established in 1947 and we have listed a few below:
- GBP = Great British Pound
- EUR = Euro
- CHF = Confoederatio Helvetica Franc (Swiss Franc)
- USD = United States Dollar
- CAD = Canadian Dollar
- JPY = Japanese Yen
- AUD = Australian Dollar
- NZD = New Zealand Dollar
Currencies are always traded in pairs, for example EUR/USD, USD/JPY. Every position requires the buying of one currency and selling of another. When someone says they are ‘buying the EUR/USD’, they are buying Euros and selling Dollars.
There are many other Forex currency pairs available to trade, such as the Danish Krone, Mexican Peso, and Russian Ruble. However, these currency pairs are generally traded less, and are not considered major currencies.
Major Forex Currency Pairs
Some Forex currency pairs are traded more heavily than others. The currency pairs that have the most volume consist of the ‘majors’. It is widely agreed that the following 6 pairs are considered the majors:
For example, let’s assume a Forex trader buys 1 standard lot of GBP/USD. The current exchange rate is 1.9615. Essentially this trader is buying 100,000 Pound in exchange for $196,150. Again, for example’s sake, assume the Forex market rate rose 15 PIPs to 1.9630 and the trader liquidates the position. The same 100,000 Pound is now worth $196,300, the trader realizing a $150 profit.
Nicknames are sometimes used for currency pairs. Here is a list of Forex currency pairs and commonly used nicknames for each:
- GBP – Pound, Cable, or Sterling
- EUR – Euro
- CHF – Swissy, or Franc
- USD – Greenback
- CAD – Loonie
- AUD – Aussie
- NZD – Kiwi
- JPY – Yen
Importance of currency pair types
These categories usually reflect the liquidity and volatility of the currency pairs.
Liquidity and volatility are the two main factors the type of currency pairs affect.
- Liquidity shows how interested other traders are in this particular pair. More popular pairs (e.g., major pairs) have higher liquidity. As a result, you can easily buy and sell EURUSD in large quantities without the risk of slippage.
- Volatility is the price range of value within a certain period (day, week, month, etc.), which shows the currency’s stability. It depends on the number of orders with this particular currency on the market, economic well-being in the region, and certain macroeconomic events.
Currencies with lower liquidity have higher volatility and vice versa. Usually, the less popular the pair, the higher its volatility. High volatility can be a risk for traders, although it is likely to bring a bigger profit: it all depends on your trading style and strategies.
To be a better trader, you should always be aware of these aspects.