Online Forex: Examining The Most Popular Currency Pair
In the foreign exchange market, the most highly traded currency pair in the world is the euro and the US dollar, which is always quoted as EUR/USD
. Because trillions of dollars worth of transactions occur with the EUR/USD every week, this currency pair is highly liquid and is the least expensive pair to trade. For a trader of any experience level, but especially for those traders who are new to the market, it is a great idea to start your trading by focusing on EUR/USD.
In the common notation for this currency pair, the euro is the base currency and the dollar is the counter-currency. So whenever you see a price quote for EUR/USD, that number is telling you how many dollars it will take to buy one euro. Because the euro is always quoted as the base currency, this pair trades inversely to the overall value of the dollar. So if you believed that the value of the dollar is going to increase, you would sell this pair since you would be selling euros and buying dollars.
One of the great benefits to trading the EUR/USD currency pair is that in most cases it has the lowest spread out of all the currency pairs. Many brokers promote the fact that they can offer you commission free trading, but this does not mean that they do not get compensated when you place trades. The spread is the difference between the prices at which the broker is willing to let you buy or sell currency, and when you are trading a currency pair that has a higher spread you must take into account that it might be harder to earn short-term profits.
One of the reasons that so much trading takes place with this currency pair is because it is the primary tool that traders prefer to use when it comes to speculating on the overall value of the dollar. With low spreads and high market liquidity, when it is seen that there is going to be a change in the value of the dollar then most traders will want to use this pair in order to take advantage of that trading opportunity.
Another popular benefit of trading the foreign exchange market is that you can trade at any time of the day, since there is always a financial center open somewhere in the world during the global business week. If you live in America, economic data coming out of Europe is released about 6 hours before the data comes out in the US. So if you wanted to take advantage of these potential trading opportunities from European financial data you would need to wake up very early in the morning, and your trading day could go from 3AM to 11AM so that you could trade both US and European economic data.
All in all, there is not a single forex trader out there that does not know the EUR/USD pair. There are some traders that focus exclusively on these two currencies, and the obvious benefit of trading the two most popular currencies in the world is that you will always have market liquidity, since everyone wants cash. The key to profiting from this currency pair is to identify a potential trading opportunity as either a dollar move or a euro move, and then put yourself in a postion to capture that change in value.
by: Ricky Weber
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