Most currency transactions involve the "Majors" consisting of the British Pound (GBP), Euro (EUR), Japanese Yen (JPY), Swiss Franc (CHF) and the US Dollar (USD). Many traders are beginning to add the Canadian Dollar (CAD) and the Australian Dollar (AUD) to this category as well.
Often new traders struggle to grasp the concept of trading currencies in pairs, why not just buy the Euro they might ask? Why does it have to be paired with the US Dollar? Simple, the currency on the right side of the pair is there to establish a comparative value, without it how could the base currency (currency on the left side of the pair) have any certain value? In other words, if currencies were not paired what would a single currency gain or lose value against? By pairing two currencies against each other a fluctuating value can be established for the one versus the other. So, how is the Euro doing against the Dollar, or how many Dollars does it take to
Cross Currency Pairs
Currency pairs that do not include the US dollar are referred to as Cross Currency Pairs. Cross Currency trading can open a completely new aspect of the Forex market to speculators. Some cross currencies move very slowly and trend very well, ideal for beginning traders. Other cross currency pairs move very quickly and are extremely volatile; with daily average movements exceeding 100 pips.